Global bond sell-off reignites as oil jumps to $109 - Financial Times

A renewed surge in oil prices to $109 a barrel has rekindled a global bond sell-off, reviving a dynamic that dominated markets earlier this year. The relationship is straightforward: higher energy costs feed directly into headline inflation, which in turn shapes expectations for how long central banks can keep interest rates elevated. When oil climbs, bond investors typically demand higher yields to compensate for that inflation risk, pushing prices lower.

The move matters because government bonds sit at the centre of global asset pricing. Yields on benchmark sovereign debt act as a reference point for mortgages, corporate borrowing and equity valuations. A sustained rise in yields can tighten financial conditions even without any change in central bank policy, effectively doing some of the work policymakers might otherwise have to do themselves.

What to watch now is whether the oil move persists or fades, and whether it shifts inflation expectations rather than just short-term pricing. Also worth monitoring is how central banks respond in their next communications. If officials signal that energy-driven inflation is temporary, bond markets may stabilise. If they sound more concerned, the sell-off could extend.