Oil prices returning to 100 spark inflation concerns; global bond gains for 2026 wiped out.

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Soaring oil prices reignite inflation fears, triggering a sell-off that sweeps across global fixed income markets, wiping out all year-to-date gains for global bonds.

On March 12, Bloomberg data showed that the Bloomberg Global Aggregate Index, which tracks the total return of global investment-grade government and corporate bonds, has dropped to zero, with all gains for the year erased.

The sell-off intensified further on Thursday, mainly because oil prices once again broke through the $100 per barrel mark. The index had risen as much as 2.1% year-to-date as of February 27 (just before the US-Iran conflict erupted), but those gains disappeared in just two weeks, highlighting how dramatically geopolitical shocks have reversed market sentiment.

Inflation Anxiety Overwhelms Safe-Haven Appeal, US Treasury Yields Soar to Multi-Month Highs

As the market digests the risk of escalating conflict, US Treasury yields have surged to multi-month highs this week.

Most fund managers believe that current inflation pressures have had a greater impact on the bond market than the typical safe-haven buying driven by geopolitical conflict. Normally, geopolitical turmoil would prompt investors to pour into sovereign bonds for safety, thus pushing yields lower. However, during this cycle, market vigilance on inflation has clearly dominated, significantly diminishing the safe-haven appeal of US Treasuries.

Analysts point out that although the market generally expects the Federal Reserve to hold rates steady next week, if price pressures continue to mount, even signs of a slowing labor market may not be enough for decision-makers to restart rate cuts in the coming months.

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