Global bond sell-off deepens as oil spike stokes stagflation fear

Crude oil has spiked almost 80 per cent since the Iran war began and disrupted shipments from the Middle East. Read more at straitstimes.com.

SINGAPORE - Global bond markets tumbled in Asian trading on March 9 as an oil price shock prompted investors to price in higher inflation and a deteriorating economic growth outlook.

Yields on benchmark 10-year US Treasuries rose more than seven basis points – the most since January – with pressure rippling through other sovereign debt markets. Australia’s policy-sensitive three-year yield climbed to its highest level since 2011, while German bund futures slid to an almost 15-year low. 

Treasuries later pared some losses, and the Bloomberg Dollar Spot Index trimmed gains after the Financial Times reported that Group of Seven finance ministers would discuss a possible joint release of oil reserves with the International Energy Agency.

Still, the broader bond rout reflects anxiety about the global economy after crude oil surged toward US$120 a barrel, up almost 80 per cent since the Iran war began and disrupted shipments from the Middle East. Sustained price increases could force central banks to keep policy tight to curb inflation even as growth slows, leaving the world grappling with stagflation.

Inflation fears have led traders to scale back expectations for the US Federal Reserve’s next quarter-point rate cut to September. At the end of February, before the war erupted, traders had fully priced in a move by July. Some bond options traders are now betting the Fed may not cut rates at all in 2026. 

“A weeklong halt in Hormuz shipping is driving a fast‑escalating energy shock, lifting oil and gas prices, boosting the US dollar and global yields, and challenging 2026 consensus trades as stagflation risks rise,” OCBC strategists including Sim Moh Siong wrote in a note.