Bond yields climb as markets brace for Trump-Xi summit and Iran tensions
Global bond markets slipped further on Thursday, with U.S. Treasury yields hitting post-crisis highs amid worries over the Iran conflict, inflation and the upcoming meeting between President Trump and Chinese President Xi.
World bond markets slipped further on Thursday as investors reacted to heightened concerns over the Iran conflict, persistent inflation and the upcoming meeting between U.S. President Donald Trump and Chinese President Xi Jinping in Washington. The 10-year U.S. Treasury yield rose to a post-financial-crisis peak of 5.145% in early European trading, while European sovereign spreads widened and Japan’s 10-year yield jumped to a 30-year high.
AXA chief economist Gilles Moec said the market is now facing “inflation is high, central bankers are giving hawkish messages, there’s competition from the funding needs of the tech sector and there are no reassuring signs on the U.S. debt trajectory,” adding that the situation is compounded by “the binary geopolitical issue of what is happening in the Middle East.”
“There is definitely angst in the bond market. There are no two ways about it,” said Pictet Asset Management strategist Arun Sai.
“We are going through a period where the steady-state equilibrium has been challenged in a number of ways, and it’s competing narratives, and it’s not yet obvious which of these is right,” Sai added.
Oil prices moved above $105 a barrel as doubts resurfaced about a potential U.S.–Iran deal, despite recent UN talks. Reports suggest Trump is considering a ban on diesel exports, while Iranian officials have set conditions for truce talks, including the acceptance of a shipping route and the release of frozen assets. Iran’s president warned that navigation through the Strait of Hormuz would not be allowed while U.S. sanctions remain.
The dollar hovered near a two-month high against major currencies, supported by the rise in Treasury yields. Traders now see a roughly 70% probability of a Federal Reserve rate hike in October, up from 50% a week earlier, according to CME Group’s FedWatch tool. Upcoming speeches from Federal Reserve and European Central Bank officials are expected to add further market guidance.
The meeting between Trump and Xi, part of Xi’s first U.S. visit in nearly three years, is unlikely to produce major breakthroughs, though Washington and Beijing have agreed on an initial two-month extension of their 11-month trade truce.