[MARKET ANALYSIS] Global yields jump amidst central bank repricing and higher energy prices

Global benchmarks are down, dragged lower early in the week as markets digested hotter-than-expected CPI/PPI, the prolonged Iran conflict (higher energy prices), with fears also exacerbated by the turmoil in the UK’s Labour Party. Markets remain on tenterhooks given the mentioned factors, and this has been reflected in market pricing across several major central banks. Traders now assign a 70% chance of a 25bps hike by year-end and fully priced in for July 2027.
USTs are currently down by 16+ ticks, and trading at the bottom end of a 109-16 to 109-29+ range. Attention over the past day has been on the Trump-Xi meeting, where initial commentary suggested positive developments; President Trump stated that many problems with China were “settled”. Focus now shifts from China, and back to Iran, where no progress has been made. Some reports have touted that Trump may look to immediately strike Iran after his China visit, to force Iran into a deal. If enacted, there is a risk that Iran chooses to restart strikes on US allies in the Middle East, leading to another spike in energy prices, hence filtering through into US yields.
On that note, US yields are firmer across the curve and slightly more so at the belly of the curve. The US 10yr now sits above the key 4.50% mark, sitting at levels not seen since May 2025. The 4.50% level has long been an attractive level for most investors, but a more decisive breach above the level could see the yield begin an upward “spiral”, ING notes. There is a bit of clear air from current levels to the high from 22 May 2025 (4.627%).
Bunds follow the negative action seen across peers, and trade at the bottom end of a 124.61 to 125.03 range. Whilst yields are firmer across the curve today, levels remain within familiar levels; 10yr holds around 3.108% vs a near-term high of 3.133%. As it stands, the belly of the curve is outperforming; however, traders may soon begin to factor in weaker economic growth across the EZ, which may see medium-term yields begin turning lower.
Gilts underperform vs peers and are currently off by 129 ticks; holding at the bottom of an 85.53-85.85. Ultimately, following peers, but the move also exacerbated by domestic politics. A full review is on the Newsquawk feed at 07:35 BST, but in brief: Labour MP for Makerfield announce he is willing to stand aside and spark a by-election, to allow current Greater Manchester Mayor Burnham to run and then, if successful, to challenge for the Labour leadership and, by association, the role of Prime Minister. For reference, Burnham was touted as the “least” market-friendly outcome by a recent FT fund manager survey.
From a yield perspective, the 10yr now sits at a 5.133% peak from the 12th of May, which roughly aligns with levels from July 2008. If surpassed, we have the 2008 peak of 5.26% and 5.57% from 2007. For the 30yr, its YTD peak is 5.81%, and if breached, we look to 5.96% from 1998.
Analyst commentary: Barclays writes that markets are coalescing around an expectation for a steeper UK 2s10s curve, which they believe is an “effective” way to position for increased fiscal/political risk. Oxford Economics writes that in the near term, political uncertainty will keep the 10yr above 5%, and could remain at elevated levels should the Labour Party opt to wait for Burnham.