Global bonds sell off as Middle East conflict escalates, further stoking inflation fears

By John Towfighi, CNN

New York (CNN) — Global bond yields rose Tuesday to their highest levels in decades as an escalation in the Middle East conflict pushed up oil prices and increased concerns that the Federal Reserve and other central banks could raise interest rates this month.

In Japan, the 10-year government bond yield hit 3% for the first time since 1996. In the UK, the 30-year yield reached the highest level since 1998. Germany’s 10-year yield hit its highest level since 2011.

Yields rise when bond prices fall. Investors are dumping bonds, pushing yields higher, as they assess the outlook for inflation and central bank interest rates.

Oil prices jumped to start the week, adding to nerves about inflation, as the US and Iran traded attacks for the first time in over a month. Brent crude, the global benchmark, pushed higher Tuesday after US officials said forces began striking Islamic Revolutionary Guard Corps (IRGC) targets in Iran at 12 p.m. ET.

Brent traded as high as $94.36 a barrel and in recent trading was up 3.8%, to $93.95 a barrel. WTI, the US benchmark, was recently up 4.4%, to $89.50 a barrel.

Investors worry that a sustained increase in the price of oil could push overall inflation higher, making it harder for central banks to ease monetary policy.

The bond market moves underscore investors’ anticipation of higher rates from central banks. And as inflation risks increase, investors demand higher returns to hold longer-term debt.

“The longer the conflict abroad persists, the greater the risk [of] long-run inflation,” Tom Tzitzouris, head of fixed income research at Baird Strategas, wrote in a note.

The yield on the 10-year US Treasury note, a key benchmark for mortgage rates and other costs for consumers, rose to 4.79%, the highest since January 2025. The 30-year, which responds most quickly to geopolitical events and nerves about government deficits, reached 5.27%.

Bond yields help set interest rates across the economy. A steep rise in yields can push up the cost of mortgages, auto loans and commercial loans, making things more expensive for businesses and consumers alike. A jump in bond yields can also put pressure on the stock market.

Global phenomenon

Bond yields have climbed across different economies as investors weigh concerns about inflation and central bank rates while also grappling with longstanding concerns about mounting government deficits.

Yields have pushed higher this week after Federal Reserve Chairman Kevin Warsh during remarks at the annual Jackson Hole Economic Policy Symposium on Friday said inflation was “concerning.” That’s prompting investors to sell bonds as they reassess the odds of a rate hike at the Fed’s upcoming meeting on September 15-16.

Yields are also surging as investors assess mounting government deficits. The US national debt topped a record $40 trillion in August, putting a spotlight on unease over America’s fiscal health. Investors are demanding greater compensation for the perceived risk of holding government debt.

Concerns about government deficits are a global phenomenon. Governments in Japan, the United Kingdom and France are all dealing with their own debt burdens, and investors are increasingly demanding higher rates to hold bonds. The 10-year yield in France on Tuesday hit its highest level since 2008.

The intensifying bond market sell-off comes just weeks after the Treasury Department announced it would increase the size of bond buybacks to help try and tame the rise in yields.

Finance ministers and central bank governors from G20 countries are meeting in Asheville, North Carolina, this week amid the backdrop of the global bond market sell-off.

The rise in bond yields unsettled the stock market Tuesday: The S&P 500 was down 0.6%, while the Nasdaq Composite moved 0.9% lower.

“If we continue to have this grind higher [in yields], I think stocks are going to feel it a little bit more,” Natalia Lojevsky, managing director at CIFC Asset Management, told CNN. “It’s definitely a headwind.”

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