Global bonds decline, Trump warns, driving oil prices soaring, Japanese government bond yields rise to 2.39%

The market was moving toward stability—until geopolitical developments shattered that pattern. After Donald Trump warned that the U.S. would carry out an “extremely harsh” strike on Iran within two to three weeks, risk sentiment flipped sharply, dragging global bonds and stocks lower while pushing Brent crude prices toward roughly $107 per barrel. This move appears linked to mounting concerns in the market: disruptions to energy supplies could intensify and bring inflation pressure just as the market had been expecting relief. Trump’s shift in tone also weakened expectations that a near-term solution would be reached, prompting investors to reassess their positions across various assets.

Japan’s bond market has become the clearest reflection of this pressure. A 10-year government bond auction saw the weakest demand since May: the bid-to-cover ratio fell from 3.3 last month to 2.57, below the 12-month average of 3.28. The 10-year government bond yield rose by as much as 9 basis points to 2.39%, matching the highest level in nearly three decades. Meanwhile, the auction’s tail spread widened sharply from 0.06 to 0.36, highlighting weak support for pricing. This pressure has spilled over into global interest-rate markets as well: the U.S. 10-year Treasury yield rose to 4.38%, approaching the 4.43% level seen at the end of March. The foreign-exchange market also reflected similar strain, with the yen against the U.S. dollar falling to 159.48 at one point and holding near levels that have historically raised concerns.

The current backdrop suggests policy expectations may shift alongside inflation risks. Rising oil prices and a weaker yen have intensified speculation that the Bank of Japan may need to tighten policy. Overnight index swaps show the market assigns about a 70% probability of a rate hike before April, and that by before July a 25-basis-point hike has been fully priced in. Strategists noted that although yields are already elevated, the results of this government bond auction were unexpectedly poor—potentially indicating that worries about inflation are worsening rather than confidence in higher returns strengthening. If energy-driven price pressure persists, the double overlap of tighter-policy expectations and fragile demand could keep volatility in global markets elevated.

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责任编辑：张俊 SF065