Global Bond Selloff Deepens as Oil Tops $100, Stirring Stagflation Fears
A deepening selloff gripped global bond markets as crude oil climbed past $100 a barrel, reviving fears that persistent energy costs could trigger stagflation across major economies.
Government bond yields, which move inversely to prices, spiked worldwide. Benchmark German 10-year yields surpassed 3.5% for the first time since April 2011, according to data from the London Stock Exchange Group (LSEG).
In the United States, the 10-year Treasury yield edged higher after breaching 4.9% for the first time in three years, raising borrowing costs closely tied to consumer mortgages and credit cards. Yields also jumped across the Asia-Pacific region: Australia’s 10-year yield rose 12 basis points, South Korea added 8 basis points, and Japan climbed 6 basis points to hover just below its highest level since 1996.
Stagflation Concerns Mount
While crude eased slightly following an initial spike, benchmark Brent crude remained elevated around $105.40 a barrel. European natural gas futures also surged to their highest levels since 2022, compounding cost pressures on businesses and households.
Analysts warn that financial markets may have to absorb elevated energy prices for the foreseeable future. Russ Mould, investment director at AJ Bell, said political rhetoric from Donald Trump suggests diplomatic progress with Iran is unlikely ahead of the U.S. midterm elections, leaving investors to brace for oil prices to remain elevated for months.
Compounding these worries are mounting government debt burdens and deficit spending across advanced economies. Analysts at Deutsche Bank noted that fears of stagflation—a damaging combination of stagnant economic growth and high inflation—are spreading across multiple asset classes.
Central Banks and Supply Pressures
In response to persistent price pressures, the European Central Bank (ECB) raised its benchmark interest rate by a quarter percentage point to 2.5%. The president of Germany’s central bank told CNBC that sustained energy inflation could force the ECB to push borrowing costs further into restrictive territory.
Supply risks in the Middle East continue to underpin the energy rally. Kim Fustier, senior global oil and gas analyst at HSBC, warned that markets are adjusting to a “new normal” in which the vital Strait of Hormuz is “neither completely closed nor fully open, but continuously impaired.”
If diplomatic resolutions fail and shipping disruptions persist, global petroleum inventories could drop to operational minimums and drive Brent crude toward $120 a barrel, Fustier said. Under such a scenario, analysts caution that prices may not meaningfully retreat until the third quarter of 2027, when demand destruction and non-OPEC supply expansion finally restore balance.