Bond Markets Hit by Oil Shock

Global bond markets faced extreme volatility as investors bet on higher interest rates after central banks warned a surge in oil prices could trigger an inflation shock, reversing earlier expectations of 2026 rate cuts. The selloff intensified three weeks into the Iran conflict, with short-term bonds repriced sharply as energy-driven inflation fears overrode growth concerns, erasing hopes for monetary easing. The UK led the rout, with two-year yields spiking 40 basis points to 4.49% after the Bank of England pledged to act against accelerating inflation, evoking memories of 2022’s Liz Truss market crisis. Analysts noted the market doesn’t anticipate a sustained energy price increase, but the immediate repricing reflects heightened sensitivity to geopolitical risks and central bank signaling. The shift underscores how oil-driven inflation pressures are reshaping monetary policy expectations, forcing investors to abandon bets on near-term rate reductions.