Government bond yields in the US, UK, Germany, France and Japan climbed to multi-decade highs on Tuesday as prospects for a US-Iran ceasefire evaporated, intensifying concerns over inflation and fiscal stability.
The surge in borrowing costs followed the collapse of a temporary ceasefire between Washington and Tehran, which ended without a formal agreement on Monday. Negotiations to reopen the Strait of Hormuz, a critical oil transit route, remain stalled, further straining global energy markets and investor sentiment.
In the US, the 10-year Treasury yield approached levels last seen in 2007, rising above 4.5%, while equivalent German bund yields climbed toward 2.8%. UK gilts and French OATs also posted sharp increases, reflecting heightened risk aversion among bond traders. Japanese government bond yields, though still negative in real terms, edged higher as the yen weakened against major currencies.
Analysts cited the breakdown in diplomatic efforts as a key driver of the selloff, with markets pricing in a higher probability of prolonged inflation and elevated government debt servicing costs. The absence of a clear resolution to the Strait of Hormuz dispute has compounded fears of supply disruptions, particularly for crude oil, which has already seen price volatility in recent sessions.
The Federal Reserve and other central banks face mounting pressure to address inflationary pressures, though policy responses remain constrained by the uncertain geopolitical backdrop. Investors are closely monitoring developments in the region, with further yield increases expected if diplomatic efforts fail to regain momentum.
