Global government bond markets are heading for their steepest monthly decline in years.
The move comes as the prolonged Middle East conflict drives a surge in oil prices and reignites concerns about inflation and slowing growth.
Yields have climbed sharply across major economies in March, reflecting a rapid repricing of interest-rate expectations and a broad retreat from fixed-income assets.
Yields surge across major economies
In the US, the two-year Treasury yield is set for a rise of around 50 basis points this month—its largest increase since October 2024—while the 10-year yield has climbed about 44 basis points to roughly 4.39%.
Europe has seen even more pronounced moves. The UK’s two-year gilt yield has jumped 98 basis points, marking its biggest monthly increase since the 2022 market turmoil under former Prime Minister Liz Truss.
The 10-year gilt yield has risen 77 basis points.
German and Italian bonds have also sold off sharply.
Germany’s two-year yield has risen 69 basis points, while its 10-year yield reached a 15-year high of 3.13% last week.
Italy’s two-year and 10-year yields are up 85 and 78 basis points, respectively.
Oil surge shifts focus to growth risks
The bond selloff has been driven largely by the sharp rise in energy prices.
Oil has climbed above $100 per barrel from around $70 in late February, marking its largest monthly percentage increase in decades.
While the initial reaction centred on inflation risks, analysts say markets are now increasingly focused on the potential hit to economic growth.
The surge in yields reflects a significant reset in monetary policy expectations.
Markets have largely abandoned earlier forecasts for rate cuts by the Federal Reserve this year.
In Europe, investors now expect the European Central Bank and the Bank of England to deliver two to three rate hikes in 2026, a sharp shift from prior expectations of easing.
Asia diverges, China stands out
Bond markets in Asia have also seen volatility, though with notable divergence.
Australia’s three-year yield has risen about 50 basis points this month, while Japan’s 10-year yield has climbed 25 basis points, with shorter-term yields hitting multi-decade highs.
China has emerged as an outlier. Investors view the country as relatively insulated from the oil shock due to strong crude stockpiles, expansion in green energy, and subdued inflation.
Chinese two-year yields have fallen more than 11 basis points in March, positioning the market for its largest monthly decline since December 2024.
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