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Global Bonds Plunge in Worst Quarter Since 2024 Amid Inflation Fears
Confirmed
In Short: Global bonds are witnessing their worst quarter since 2024, driven by fears of inflation as crude and fuel prices surge. The average yield on government debt worldwide now stands at nearly 4%, the highest since 2007, according to Bloomberg’s Global Aggregate Treasuries index.
The U.S. 10-year Treasury yield has risen to 5.11%, its highest level since 2007, reflecting the market's concern over inflation and government debt burdens.
Oil prices have surged, with the global Brent crude oil benchmark climbing more than 5% to about $95 a barrel. This rise in oil prices has pushed up Treasury yields and longer-term borrowing costs, leading to a global selloff in bonds.
Stock markets fell on September 24 as oil prices rose sharply and U.S. bond yields jumped on inflation fears. World leaders at the UN General Assembly offered little to suggest progress in ending turmoil in the Middle East.
The Federal Reserve raised interest rates last week for the first time since 2023, and expectations for additional increases over the coming year have picked up. Swaps now fully reflect three quarter-point hikes over the next year from the Fed, with significant hedging for a fourth.
The rise in bond prices has increased fears of a wave of increases flowing to mortgage rates, business, and consumer loans. The 30-year fixed-rate mortgage rose to 6.71% for the week ending September 3, its highest level since July 31, 2025.
The global bond sell-off and mounting inflation fears have pushed the 30-year fixed-rate mortgage higher, with the catalyst being renewed US-Iran hostilities sending oil prices higher, persistent inflation, and investor concern over a gross national debt that has surpassed $40 trillion.
The OECD said that global economic growth had been “resilient” in many countries despite the war, slightly raising its economic output forecasts for 2026.
Not all market observers believe that yields are rising for “bad” reasons like rising inflation risks. Some analysts argue that U.S. productivity growth is poised to neutralize concerns about rising inflation, dismissing high global oil and gas prices as merely a temporary supply shock.
The surge in oil and diesel prices is reviving inflation and recession fears, with U.S. diesel up roughly 60% since February and hitting a record $6 per gallon. However, there is little evidence of that fuel inflation spilling into the broader market, with the core inflation reading for August at 2.4%.
What this adds
This report adds details on the specific impacts of rising oil prices and inflation fears on global bond markets, including the significant rise in Treasury yields and the implications for mortgage rates and broader economic growth.
Background
Global bonds are facing their worst quarter since 2024, driven by fears of inflation as crude and fuel prices surge. This increase is pushing up Treasury yields and longer-term borrowing costs, creating a challenging environment for investors.
What's confirmed
- The U.S. 10-year Treasury yield has risen to 5.11%, its highest level since 2007, reflecting the market's concern over inflation and government debt burdens.
- Oil prices have surged, with the global Brent crude oil benchmark climbing more than 5% to about $95 a barrel. This rise in oil prices has pushed up Treasury yields and longer-term borrowing costs, leading to a global selloff in bonds.
- Stock markets fell on September 24 as oil prices rose sharply and U.S. bond yields jumped on inflation fears. World leaders at the UN General Assembly offered little to suggest progress in ending turmoil in the Middle East.
- The Federal Reserve raised interest rates last week for the first time since 2023, and expectations for additional increases over the coming year have picked up. Swaps now fully reflect three quarter-point hikes over the next year from the Fed, with significant hedging for a fourth.
- The rise in bond prices has increased fears of a wave of increases flowing to mortgage rates, business, and consumer loans. The 30-year fixed-rate mortgage rose to 6.71% for the week ending September 3, its highest level since July 31, 2025.
- The global bond sell-off and mounting inflation fears have pushed the 30-year fixed-rate mortgage higher, with the catalyst being renewed US-Iran hostilities sending oil prices higher, persistent inflation, and investor concern over a gross national debt that has surpassed $40 trillion.
- The OECD said that global economic growth had been “resilient” in many countries despite the war, slightly raising its economic output forecasts for 2026.
- Not all market observers believe that yields are rising for “bad” reasons like rising inflation risks. Some analysts argue that U.S. productivity growth is poised to neutralize concerns about rising inflation, dismissing high global oil and gas prices as merely a temporary supply shock.
- The surge in oil and diesel prices is reviving inflation and recession fears, with U.S. diesel up roughly 60% since February and hitting a record $6 per gallon. However, there is little evidence of that fuel inflation spilling into the broader market, with the core inflation reading for August at 2.4%.
What's still developing
- The average yield on government debt worldwide now stands within a whisker of 4%, the highest since 2007, Bloomberg’s Global Aggregate Treasuries index shows.
- The US Federal Reserve lifted borrowing costs last week, providing relief to traders concerned that policymakers were not moving quickly enough to address a spike in inflation.
- “Part of the reason is also there’s no clear off-ramp in regards to the energy markets, the UN comments today and the headlines coming out of it have not necessarily helped the sentiment around geopolitical risks.” Hopes for a deal to get Gulf oil and gas flowing freely through the Strait of Hormuz as global leaders gathered in New York had sent oil prices down in recent sessions.
- Morning Rundown: DOJ’s civil rights unit tasked with voter fraud and 5 dead after cargo plane crashes Oil prices surged Tuesday after the U.S. military announced further strikes against Iran, deepening inflation concerns and extending an earlier market sell-off in stocks and bonds.
- “Another global rise in interest rates and do stocks now finally care?” wrote Peter Boockvar, chief investment officer of One Point BFG Wealth Partners.
- Fed Chairman Kevin Warsh indicated last week that the central bank is uncomfortable with the current rate of inflation, remarks investors interpreted to mean the Fed is likely to raise its key interest rate in response.
- Meanwhile, the key US 10-year Treasury note has also risen to a 20-month high, since Federal Reserve chief Kevin Warsh gave a hawkish speech at Jackson Hole on Friday, saying the US central bank has “work to do” if inflation does not cool.
- German bonds are also up, with the 10-year bund rising over three basis points to a 12-month high, while its two-year bund touched 2.9496%, which is a more than two-year high.
- Interest in crypto assets has continued to improve against the backdrop of elevated inflation in the United States (US), which prompted the Federal Reserve (Fed) to raise rates by 25 basis points last Wednesday.
- This tighter monetary policy is part of the central bank’s goal of bringing inflation down to 2% amid pressure from geopolitical tensions in the Middle East.
- “Energy inflation does not stay at the gas station,” economist Sung Won Sohn, president of SS Economics, wrote in a Substack post last week.