Global bonds sell off on inflation shock; 30-year yield hits 2007 high

The global fixed-income market experienced its most significant shock in months as investors fled bonds amid mounting evidence that war-driven oil supply disruptions will keep inflationThe rate at which prices rise across an economy. elevated longer than previously priced. The selloff accelerated through May 15, with the 30-year US Treasury yield climbing to levels not seen since 2007, a regime shift that caught many positioning for a dovish Fed pivot.

Major forecasters including oil demand trackers have slashed consumption expectations for 2026 after the Iran conflict disrupted critical shipping routes. The Strait of Hormuz, which handles roughly 20% of global oil flows, faces potential closure, prompting spot crude to remain elevated and energy importers to face margin compression. Goldman Sachs and JPMorgan strategists acknowledged the bond market's "bond vigilante" dynamics returning, with Kay Herr at JPMorgan Asset Management warning that investors are repricing rate assumptions as central banks confront an uncomfortable inflationThe rate at which prices rise across an economy.-growth trade-off.

Equity markets reacted swiftly to the yield shock. US stock futures fell roughly 1% as of early Friday morning, with European equities posting their worst day since late March. The S&P 500 and Nasdaq both experienced profit-taking after weeks of record highs fueled by AI enthusiasm. Critically, memory and semiconductor stocks suffered outsized declines as investors questioned whether elevated rates would undermine the capex cycle underpinning the AI rally. The rotation into cheaper industrials and defensive value gained traction, though RBC strategist Lori Calvasina warned that a 5% yield level would meaningfully compress price-to-earnings multiples.

Sceptical voices point out that oil prices, while elevated, remain well below crisis levels of prior decades, and that inflationThe rate at which prices rise across an economy. data outside energy has stabilized. However, Morgan Stanley and other strategists flagged that persistent energy price pressure combined with tighter financial conditions poses a material risk to corporate margins and consumer spending momentumThe empirical fact that winners keep winning over the medium term. heading into summer. The real test will be whether central banks, including an incoming Fed chair in Kevin Warsh, can credibly communicate an "on-hold" posture or face market-driven tightening.