Bond yields jumped on Tuesday as the prospect of higher oil prices stemming from uncertainty in the Middle East pushed borrowing costs in the United States, Germany, Japan and elsewhere to multiyear highs. Investor unease could also be seen in stock markets, which fell around the world.
A shaky cease-fire between the United States and Iran officially ended on Monday, dimming the prospects for a reopening of the Strait of Hormuz, a critical waterway for shipments of oil and gas from the Persian Gulf. The fighting has also expanded to the Red Sea, where Iranian-backed Houthi militants have launched attacks on ships around another choke point for Middle Eastern oil.
The escalating war has pushed up oil prices, stoking fears that already stubborn inflation will remain elevated. That has added to worries about government debt and deficits and the enormous spending and borrowing by companies building artificial intelligence systems.
Bond yields climb.
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The yield on the 30-year U.S. Treasury bond rose to 5.33 percent, its highest level since June 2007. Persistently high inflation, uncertainty about the Federal Reserve’s ability to contain rising prices and a deluge of debt to finance government spending and companies’ A.I. plans were all cited as factors in the bond market sell-off. (Yields rise as bond prices fall.)
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Government bond yields around the world were also hovering at multiyear highs: Germany’s 30-year yield rose to its highest level since 2011, and the equivalent yield in Japan traded close to its highest yield on record.
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“Bond prices are sending warnings,” Geoff Yu of BNY wrote in a research note, as “investors demand more compensation for inflation risk, heavy government borrowing, rising corporate issuance and a changing buyer base.”
Stocks fall.
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Futures on the S&P 500 pointed to a decline when stocks resume trading in the United States on Tuesday, which would be the index’s third consecutive daily fall.
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Stocks in Asia, where countries import vast quantities of oil and gas, were mostly down. The Nikkei 225 index fell 2.5 percent and the KOSPI in South Korea slid 1.6 percent, while the Hang Seng in Hong Kong eked out a small gain.
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In Europe, stocks were mixed. The Stoxx 600, a broad index that tracks the region’s largest companies, fell about half a percent, while the FTSE 100 in Britain edged higher.
Oil prices inch higher.
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The price of Brent crude, the global benchmark, traded at about $91 a barrel for oil to be delivered in October. That is about 25 percent higher than when the war in Iran began, and up sharply from around $80 a barrel two weeks ago.
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West Texas Intermediate crude, the U.S. benchmark, rose to around $85 per barrel.
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Contracts for oil to be delivered further out showed bigger gains, with the price of Brent for December hitting a two-month high, above $87 a barrel. “In other words, investors are pricing in a more protracted period of higher oil prices again,” analysts at Deutsche Bank wrote in a note.
Gasoline prices remain above $4 a gallon.
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Gas prices crept up on Tuesday, to a national average of $4.07 a gallon, according to the AAA motor club. Prices have increased about 37 percent since the war began.
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Gas prices don’t move in lock step with crude, usually trailing increases or drops by a few days.
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The average price of diesel rose to about $5.47 a gallon on Tuesday, up 45 percent since the start of the war.
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