Global Bond Selloff Intensifies as Oil Prices Spike on Middle East Conflict
Bond yields surged globally as rising oil prices from the Iran conflict drive inflation fears, forcing central banks worldwide to reconsider easing policies and pricing in higher rates to combat inflation.
Worldwide Treasury Yields Climbing
Financial markets have been highly influenced by oil prices, which are up nearly 60% since the start of the Iran conflict, and nearly 80% since the start of 2026. The impact of the surge in commodities has been felt most acutely in global rates markets. Rates market sentiment heading into the conflict was that central bank policy rates would be unchanged or lower by end-2026. The increase in inflation expectations since the start of the war has now forced a significant hawkish repricing of central bank policy, most notably in Europe. At the time of print, 10-year bond yields in many G10 countries were at or above the highs of the past few years.
Energy Supply Disruptions Persist
The International Energy Agency revised its 2026 global oil demand forecast, projecting a Q2 2026 contraction of roughly 1.5 million barrels per day, which would represent the sharpest decline since the COVID-19 pandemic. The revisions are concentrated in the Middle East and Asia Pacific markets.
Central Bank Policy Shifts
Surging oil prices in the wake of the Iran War are starting to cause long-term problems in financial markets. "This is starting to get uncomfortable," said Dan Niles, founder of Niles Investment Management. Ten of the last 12 recessions were preceded by a spike in oil, and the Federal Reserve's ability to cut rates in the future could be hampered by oil's impact on inflation.