The ongoing conflict in the Middle East is rapidly altering the trading logic of the global bond market. Last Friday, U.S. Treasury yields fell for the third consecutive day, with the 10-year Treasury yield rising above 4.38% and the 2-year yield approaching 3.9%. This indicates that the market is repricing the chain of events: "oil price shock—inflation rising—hawkish policy."
From the market perspective, this wave of selling is not occurring solely in the United States. Reuters reports that sovereign bonds from the UK, Germany, and other European countries are also experiencing significant selling pressure, reflecting investors' concerns that disruptions in energy supply will more directly impact Europe and transmit through inflation expectations to global interest rate assets.
Market Reaction
The surge in energy prices is a core trigger factor. According to Reuters data, Brent crude has risen to around $112, while U.S. crude has reached the $98 level, with a significant increase this month. The market is beginning to discuss the risk scenario of oil prices further testing $150. Meanwhile, the decline in Asian stock markets and the strengthening of the dollar also reflect global capital's flight from risk assets.
Policy Reevaluation
On March 18th, the Federal Reserve maintained its policy rate at 3.50%-3.75% and predicted that inflation would rise. Reuters notes that although the Fed's dot plot still retains expectations for a rate cut this year, the market is no longer convinced that easing will occur as expected, and is even beginning to bet on the possibility of a rate hike in extreme circumstances.
Data Background
From current data, the inflation in the U.S. is not yet significantly out of control. The U.S. Bureau of Labor Statistics reported a February CPI year-on-year increase of 2.4%, with the core CPI up 2.5%. However, the issue lies in the fact that the energy component has previously had a limited drag on overall inflation. If oil prices remain high, future CPI, PCE, and inflation expectation indicators may all be revised upward.
Investment Outlook
For bond investors, the key issue now is not just "when will the Fed cut rates," but "how long will the war-induced energy shock last." If disruptions in the Strait of Hormuz and increased risks to regional energy facilities continue, the yield curve may continue to steepen in a bearish trend; conversely, if geopolitical tensions ease, long-term yields may fall back. This future judgment is based on the current interplay between oil prices and interest rates.
