'The final nail in the coffin': US government bond yields hit a year high

Investors' euphoria about shares of technology companies has been replaced by concerns about inflation, writes Reuters. Against this background, the yield on US Treasury bonds jumped to the maximum for the year, and bets on tightening monetary policy in the US this year increased.

The yield on two-year U.S. Treasuries rose 7 basis points to 4.065%, the highest level since March 2025, while the yield on ten-year government bonds rose 7 basis points to 4.528%, also reaching the highest levels in a year, Bloomberg notes.

The price of Brent crude oil has exceeded $107 per barrel - the halted shipping through the Strait of Hormuz since late February, through which a fifth of oil supplies passed before the war in the Middle East, has increased supply concerns, notes Bloomberg. Investors are also reacting to statements by U.S. President Donald Trump, who said that during his visit to China he managed to reach an agreement with Chinese leader Xi Jinping on Beijing's purchases of oil from Washington (China has not yet confirmed these agreements).

Nevertheless, growing inflation risks caused by the sharp rise in oil prices, reduce investor interest in U.S. Treasuries, states Reuters. Bloomberg notes that weakness was observed on May 15 and in other government bond markets. Thus, yields on 10-year Japanese bonds rose after an unexpected increase in producer prices in April (the cost of corporate goods in Japan rose last month at the fastest pace in 12 years amid the war in the Middle East). This increased pressure on the Bank of Japan to raise interest rates. Australian bond yields also rose. And European bond futures declined - investors were alarmed by political uncertainty in the UK.

"The rise in global bond yields is somewhat alarming," said Prashant Newnaha, senior Asia-Pacific interest rate strategist at TD Securities (quoted by Bloomberg). - A prolonged and sustained high trend in oil prices could be the final nail in the coffin for bonds," he added.

"Concerns about sustainable inflation are growing," agreed Kenneth Crompton, head of rates strategy at National Australia Bank. Japan and the U.K. are already facing inflation risks from fiscal policy, but "they are becoming an increasingly significant factor in the U.S. as well," he added.

Inflation in the eurozone accelerated to 3% year-on-year in April, the highest since September 2023. A similar rise in inflation - the strongest annualized rate in three years - was also recorded in the U.S. last month. Against this backdrop, CME Group's FedWatch tool shows that investors now estimate the probability of a U.S. interest rate hike at the Fed's next meeting on June 17 at 1.1%, although the previous day the estimate was 1%. In 98.9% of cases, the U.S. rate will remain unchanged in the near future, market participants believe.

This article was AI-translated and verified by a human editor