Soaring oil prices have triggered a global bond market meltdown, with borrowing costs hitting multi-decade highs, pressuring central banks to do more to stamp out inflation and raising the prospect of two more interest rate rises in Australia this year.
Government bond yields have been pushed to levels not seen since the global financial crisis in 2008 after an escalation in the Iran war this week sent Brent crude back above $US95 a barrel, fanning fears of runaway inflation.
In Australia, the crucial 10-year bond yield – which filters through the economy via mortgages and business loans – jumped to 5.22 per cent, a level last seen in 2011, potentially adding billions of dollars to the government’s $20 billion annual interest bill from its gross $1 trillion debt pile.
“Ten-year yields shouldn’t be moving around this much with oil, and they don’t normally,” said Andrew Lilley, chief rate strategist at Barrenjoey.
“This is an unusual time, so what it’s telling us is the number one risk factor for the market right now in every country is how a central bank is going to respond to the oil price and energy-driven inflation.”
In the United States, the 10-year rate has jumped to 4.8 per cent, its highest point in three years, while Japan is trading at 3 per cent for the first time since 1996, and the UK Gilts are at 5.2 per cent, the highest level since 2008.
For Australia, a stronger-than-expected GDP report for the second quarter on Wednesday reinforced expectations that the Reserve Bank of Australia will have to lift borrowing costs at least once more this year to a 15-year high of 4.6 per cent.
Source: https://www.afr.com/markets/debt-markets/global-bond-storm-puts-two-rba-rate-rises-on-the-table-20260902-p60tmb