Global Tension in Bond Markets: Japanese JGB at Unprecedented High Since 1996

A Simultaneous Dislocation of US and Japanese Curves

The sell-off has accelerated in the two main global sovereign curves. According to Reuters, the 10-year Treasury rose by more than 20 basis points over the previous week to 4.63%, while the 2-year hit 4.10%, its highest in fourteen months.

In Japan, the pressure is even more pronounced historically: the 30-year JGB reached a near-record of 4.20%, and the 10-year climbed to 2.80%, a level unseen since 1996. The prospect of an additional budget aimed at cushioning the energy shock related to the war in Iran fuels the fear of additional Japanese debt issuance, according to the same source.

This dual movement means that the global benchmark for the cost of capital is becoming more expensive simultaneously at both ends of the financial system, with no visible counterbalance in the major developed interest rate markets.

Energy and Inflation: The Catalyst for Repricing

The immediate trigger remains the oil shock. Brent oil has been trading above $110 for the third consecutive session. Prices have risen nearly 8% over the past week and more than 50% since the end of February, influenced by the closure of the Strait of Hormuz and the war in Iran.

This surge directly impacts price indices. On May 12, the Bureau of Labor Statistics reported US inflation at 3.8% year-on-year in April, with the energy component up by 17.9%. The spread of this shock is also reflected in stronger-than-expected April statistics from Europe and Asia.

The sequence is part of ongoing diplomatic tensions around Hormuz, previously discussed in our article Oil, Hormuz, Iran: In Beijing, Trump Seeks Xi's Support, at a time when Brent was still hovering around $104. The interest rate and oil levels mentioned here are those observed at the beginning of the Asian and European sessions on May 18 and could significantly change during the day.

Central Banks: The Easing Path Challenged

Market expectations have shifted significantly. Monetary contracts now reflect a more than 50% probability of a Fed rate hike by December, reversing the scenario of easing that was still widely expected a few weeks ago. The ECB is anticipated to tighten as early as next month, with the Bank of England multiple times in 2026.

This repositioning mechanically affects the valuation of rate-sensitive assets: high-duration stocks, listed real estate, emerging market debt, and the longest credit segments. It comes at a time when the external economic environment is not playing its usual cushioning role: according to China's National Bureau of Statistics, Chinese industrial production in April grew by 4.1% year over year, retail sales rose by 0.2%, and fixed investment fell by 1.6% over four months, with all components below expectations.

The context of the recent meeting between American and Chinese leaders, analyzed in the article « Trump-Xi in Beijing: A Meeting Struggling to Convince, » did not dispel the wait-and-see attitude observed in commodity markets. Expectations for decisions by the Fed, ECB, and BoE remain subject to rapid revision based on upcoming statistics and central bank communications.