What matters in U.S. and global markets today
 

Morning Bid U.S.

Morning Bid U.S.

A Reuters Open Interest newsletter

What matters in U.S. and global markets today

 

By Mike Dolan, Editor-at-Large, Finance & Markets

A bond market crunch meets the AI boom. Aggravated by still-rising oil prices, accelerating inflation, and the threat of higher interest rates and rising government debt estimates, the bond market has been spooked again, casting a pall over AI-obsessed stock markets.

The U.S. Treasury long bond yield has hit its highest level since before the Great Financial Crisis in 2007, with 30-year yields topping 5.159%, while 10-year yields have jumped to their highest in more than a year.

I'll get into that and more below.

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Today's Market Minute

  • Bonds from Tokyo to New York extended losses on Monday as rising energy prices from the ongoing Middle East war fanned inflation fears and stoked investor wagers on rate hikes ‌from global central banks.
  • The U.S.-Israeli war with Iran has already cost companies around the world at least $25 billion through higher costs, supply disruptions and operational changes - and the bill is climbing, according to a Reuters analysis.
  • China's growth lost momentum in April, with industrial output cooling and retail sales sinking amid higher energy costs from the Iran war and persistently weak domestic demand.
  • The U.S. dollar-dominated global oil trading system is being tested by the Iran war, as governments in major consuming nations turn to increasingly opaque deals with Tehran and Gulf producers to secure supplies, writes ROI Energy Columnist Ron Bousso.
  • The U.S. long bond is hogging the spotlight - but Washington has a short-term debt problem too, writes ROI Markets Columnist Jamie McGeever.
 

Bonds spoil the AI party

As G7 finance chiefs meet in Paris on Monday, bond stress is spreading around the world.

Japan’s long-dated government yields spiralled to record highs on Monday. European yields are at their highest levels, variously, in 15 to 20 years, while Britain, facing a fresh political psychodrama amid brewing challenges to Prime Minister Keir Starmer’s leadership, is seeing its highest long-term borrowing costs since the 1990s.

Interest rate rises are expected in Europe and Japan next month, with a more than 50% chance the Fed will follow by year-end.

The oil shock in the Gulf is at the heart of the latest inflation and rate-hike angst. Tensions are rising there once again amid fresh drone strikes, including on a nuclear power plant in the UAE, while the Strait of Hormuz remains effectively closed to all but a trickle of tankers.

World crude prices pushed above $110 per barrel on Monday as U.S. President Donald Trump warned Tehran that the “clock is ticking” and prepared to discuss military options on Iran, according to Axios reports. Perhaps most worryingly, year-end oil futures have risen to over $92/bbl - their highest level of the war so far.

Stock indexes had mostly been ignoring the oil shock, buoyed by the blistering AI investment boom, but they have been dragged back from record highs by the bond jolt. Major U.S. indexes closed down sharply on Friday, while Asian shares slipped on Monday and Wall Street futures edged down before the bell.

Stateside, Nvidia’s results on Wednesday are set to dominate the slate this week as a key test of the AI trade. Meantime, retailers led by Walmart will shed light on the state of the U.S. consumer amid the energy shock. And Monday will see the release of the NAHB housing market index for May, with investors and policymakers keen to monitor the impact of elevated mortgage rates.

 
 

Today's key chart  

 

Graphics are produced by Reuters.

G7 finance ministers acknowledged mounting concern over public debt and bond market volatility as they met in Paris on Monday in the wake of a bond market selloff triggered by fears over inflation risks from the Iran war.

The implied borrowing costs derived from indexes of G7 government bonds with maturities of 10 years or longer have risen to their highest in 24 years over the past week, with 30-year U.S. Treasury yields hitting their loftiest levels since before the banking crash of 2007-08.