Bond markets crack under war inflation fears

May 18, 2026 (MLN):  Global bond markets  came under severe pressure, with yields climbing sharply from Tokyo to Washington as investors grew increasingly alarmed that an ongoing war-driven inflation surge could push central banks toward aggressive interest rate hikes.

The worst of the damage was concentrated in longer-maturity bonds, which carry the greatest exposure to rising prices.

Thirty-year US Treasury yields edged toward their 2023 record, while the benchmark 10-year rate jumped 12 basis points to settle at 4.6% marking the steepest weekly climb since the market chaos triggered by President Donald Trump's sweeping tariff announcement in April 2025.

Japan's 30-year sovereign bond yield crossed the 4% threshold for the first time in the security's entire history, dating back to its initial issuance in 1999, Bloomberg reported.

British gilts fared no better, with 30-year yields scaling heights not seen in nearly three decades, a slide worsened by mounting domestic political turmoil threatening Prime Minister Keir Starmer's grip on power.

Emerging markets across the developing world followed suit with comparable losses.

Fueling the rout were rising crude oil prices and the collapse of US-China talks aimed at brokering a resolution to the Iran conflict, which ended without any meaningful progress.

Those developments piled onto already heightened anxieties following two consecutive US inflation reports  one tracking consumer prices, the other wholesale costs  both of which came in significantly hotter than expected, stoking bets that the Federal Reserve and its global counterparts may have no choice but to pivot back toward monetary tightening.

The sustained rise in yields carries real economic consequences, simultaneously inflating governments' debt-servicing burdens and squeezing households and businesses through higher borrowing costs  a combination that threatens to act as a significant brake on global growth.

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