Global Bond Rout Intensifies, Stocks Plunge as Oil Prices Climb

Global Bond Selloff Continues Amid Iran War Uncertainty

A prolonged selloff in global bonds persisted as the deadlock over the Iran war drove oil prices higher, fueling inflation concerns and prompting central banks to reassess their monetary policy stance.

Treasuries declined across the curve, with the 30-year yield rising to its highest level in almost three years due to investor fears over accelerating inflation. Japan's 10-year yields jumped 10 basis points to levels last seen in 1996, while the nation's 30-year yield surged 20 basis points to the highest since its 1999 debut. Similarly, bonds also dropped in Australia and New Zealand.

As bond yields surged, stocks extended their slide from record highs. Asian shares fell 1%, although South Korea's Kospi, the world's best-performing benchmark this year, erased earlier losses to trade little changed. Equity-index futures indicated Asian losses will spread to Europe and the US.

Read also: SpaceX Seeks Record $75 Billion IPO, Potentially Positioning Elon Musk as the World's First Trillionaire

The dollar, the haven of choice during the Middle East conflict, rose for a sixth day. Gold and silver, non-yielding assets, fell. Weighing on sentiment, Brent crude rose 2% to over $111 a barrel, after adding almost 8% last week, with no progress in efforts to reopen the vital Strait of Hormuz. President Donald Trump also said the "clock is ticking" for Iran to strike a deal.

The market turmoil on Monday follows a selloff in stocks and bonds on Friday as fears grow that the effective closure of the Strait of Hormuz will keep oil prices elevated, fuel inflation, and convince central banks to keep interest rates higher. A key test for investors this week will be Nvidia Corp.'s earnings, after months of equities brushing aside mounting macro risks on bets that billions of dollars spent on the AI rollout would drive corporate earnings growth.

The bond market is now firmly in focus, with a shift in wagers around the Federal Reserve. Traders now see an interest-rate hike as a lock by March, underscoring how the Iran war has flipped the bond-market narrative on its head since late February, when two quarter-point cuts were expected for 2026.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

The Fed needs to catch up with bond markets or risk losing control of borrowing costs as investors grow increasingly worried about inflation, according to Yardeni Research. If the Fed fails to remove inflation concerns, investors will demand a higher inflation risk premium, leading to a tightening policy stance.

Key Concerns

The core issue centered around the lack of progress in the Middle East, with the US and Iran not able to make a progress on their fragile ceasefire deal. Washington offered "no tangible concessions," while seeking "to obtain concessions that it failed to obtain during the war, which will lead to an impasse in the negotiations," said Iran's semi-official Mehr news agency.

Meanwhile, a drone attack sparked a fire at a United Arab Emirates nuclear plant, highlighting the risks to the fragile ceasefire. Finance ministers of the Group-of-Seven are set to discuss the debt selloff when they meet this week, though how they can ease pressure remains to be seen. The main issue remains the transit of oil through the Strait of Hormuz, a vital artery for the flow of oil and gas from the Middle East.

Elsewhere, the pound weakened after Wes Streeting said he would take part in any leadership contest to replace Keir Starmer and called for Britain to rejoin the European Union. The declaration follows Manchester Mayor Andy Burnham, who announced he intends to run for parliament, opening a pathway to also challenge Starmer, which caused a rout in gilts last week in fears of possible expansionary fiscal policy.

Amid the rising inflation and the continued stalemate in Iran, one key issue for traders this week will be the Nvidia Corp. earnings. The AI bellwether will announce its results after more than 80% of the S&P 500 companies reported earnings that beat estimates, according to Bloomberg Data. Any weakness in Nvidia's earnings "could weigh on tech names and broader market," said Anna Wu, a cross-asset strategist at Van Eck.