Global Bond Yields Jump, Dollar Firms on Middle East Stalemate

By Emese Bartha

Global government bond yields and the U.S. dollar rose on Friday as a lack of progress towards reopening the Strait of Hormuz kept oil prices high and left investors nervous about inflation risks.

The ceasefire between the U.S. and Iran remains in place but the parties haven't got closer to a resolution since last week's one-page memorandum of understanding which could have paved the way to end the war.

"Market sentiment is taking a hit once again this morning, disappointed by President Trump's comments late yesterday to Fox News, in which he opined that the U.S. doesn't need the Strait of Hormuz open 'at all'," said Simon Ballard, chief economist at First Abu Dhabi Bank, in a note.

Inflation concerns pushed yields higher. The dollar benefits from higher oil prices due to the U.S.'s status as a net energy exporter as well as from demand for safe-haven assets.

The 10-year Japanese government bond yield rose to 2.734%, its highest level in 29 years, according to Tradeweb data, while yields on U.S. Treasurys rose to multimonth highs across maturities.

The two-year Treasury yield rose to 4.071%, the highest level since February 2025. Meanwhile, the 10-year Treasury yield hit a one-year high of 4.546% and the 30-year Treasury yield rose to 5.096%--also a one-year high.

The DXY dollar index, which measures the dollar's value against a basket of currencies, rose to an 18-day high of 99.202. Mixed U.S. economic data have done little to slow the dollar's winning streak, said Monex analysts in a note.

The German 10-year Bund yield last traded at 3.106%, near a recent high of 3.133%. The U.K. 10-year gilt yield rose 11.5 basis points to 5.119%, weighed additionally by political uncertainty and the possibility of a leadership challenge to Prime Minister Keir Starmer.

With the Middle East conflict into its third month, inflationary concerns remain pronounced due to the continued disruption in the Strait of Hormuz. Inflationary expectations have prompted markets to consider the risks that major central banks could raise interest rates, which is another factor causing bond yields to rise.

Markets currently don't expect a rate cut by the Federal Reserve this year but see a small likelihood of a hike in 2026, according to LSEG. Money markets also expect three rate hikes each by the European Central Bank and the Bank of England for this year.

Jefferies' global economist Mohit Kumar is also increasingly concerned about the risk of higher deficits due to the potential for governments to implement fiscal measures to mitigate the impact of high oil prices.

"It's not just inflation but also higher deficits that should be the focus," he said. "We are likely to see a number of support measures for fuel subsidy announced in the coming months."

Jefferies prefers to avoid longer-dated government bonds and expects yield curves to steepen. Kumar said he is most concerned about the U.K., followed by Europe and then the U.S.

Still, analysts remain hopeful that the Middle East conflict will be resolved and are therefore cautious of anticipating that yields will rise too much further.

A resolution of the Middle East conflict could bring the 10-year Treasury yield back to 4.10%-4.30%, supported by softer Fed interest-rate expectations, said SEB chief rates strategist Jussi Hiljanen in a note.

Similarly, Commerzbank's Hauke Siemssen also said in a note that the 10-year Bund yield is unlikely to "lastingly exceed" 3.1%.

Write to Emese Bartha at emese.bartha@wsj.com

(END) Dow Jones Newswires

May 15, 2026 05:37 ET (09:37 GMT)