TL;DR

Global government bond markets sold off sharply last week. US 30-year Treasury yields climbed to 5.121%, the highest in nearly a year. UK 30-year gilt yields reached a 28-year high. Japan's 30-year yield crossed 4%. The driver is the sustained closure of the Strait of Hormuz, which has pushed energy prices up more than 80% year-to-date and driven April inflation to 3.8%, a three-year high. G7 finance ministers and central bank governors convene in Paris on Monday, May 18. Markets are now pricing roughly a 45% probability of a Federal Reserve rate hike under incoming Chair Kevin Warsh.

What Happened: Global Bond Selloff Fueled by Energy Inflation

Bond markets across the United States, Europe, and Asia sold off broadly last week, extending a trend that has accelerated since the Strait of Hormuz effectively closed to commercial traffic in early March.

The most visible pressure point was the long end of the US yield curve. The 30-year Treasury yield climbed nearly 11 basis points on Friday to 5.121%, its highest level since May 2025, according to CNBC. The move followed a week of messy inflation data and growing uncertainty about rate policy under the incoming Fed leadership.

The selloff was equally sharp in Europe. UK 30-year gilt yields hit a 28-year high as energy-driven inflation collided with domestic political uncertainty. The UK 10-year gilt yield reached 5.114%, according to Proactive Investors. Japan's 30-year yield crossed 4%, a threshold that markets had been watching as a key technical level. According to tastylive, bond markets sold off across the US, Europe, and Asia in a broad, coordinated move.

Ahead of Monday's G7 finance ministers meeting in Paris, Eurogroup President Kyriakos Pierrakakis issued a direct warning. "Opening the Strait of Hormuz and bringing the conflict to a lasting end are of the utmost importance in mitigating the impact on the economy," Pierrakakis said, as quoted by CNBC. He added that the European economy has proved resilient but warned the global economy will continue to feel pressure even if the conflict is resolved quickly.

Why Bond Markets Moved

Three forces are driving the global bond selloff simultaneously.

Energy-driven inflation. The Strait of Hormuz has historically carried more than 20% of the world's daily traded oil supply. Since the Iran conflict began in late February, tanker traffic through the strait has fallen to a fraction of normal levels. WTI crude rose above $103 per barrel on Friday and posted a weekly gain of more than 8%, according to Trading Economics. Brent reached approximately $108. Year-to-date, oil prices have risen more than 80%. The April Consumer Price Index came in at 3.8%, the highest reading in three years. The April Producer Price Index (PPI), which measures wholesale price pressures, reached 6%.

Federal Reserve uncertainty under Warsh. The Federal Reserve Board named Jerome Powell chair pro tempore until Kevin Warsh is sworn in as the new chair. Markets are still interpreting what Warsh's rate stance will mean in practice. A Bank of America survey of 60 global fund managers released Friday found that investors are "growing more nervous about upside inflation risks in the US," with some expecting rate hikes rather than cuts. Markets now price roughly a 45% probability of a rate increase.

A Trump-China summit with few deliverables. President Trump's trip to Beijing this week generated limited market-moving outcomes. Chip export controls were not discussed. A prospective Boeing deal was not formalized. There was no sign of China exerting pressure on Iran to reopen the Strait. "Markets didn't hear enough from Beijing to turn more optimistic on the Gulf," ING analysts wrote, as reported by NBC News. Trump also confirmed that Iran's most recent offer to end the conflict was "not enough."

Implications for Traders

The cross-asset read-through from rising long-end yields is significant across multiple trader groups.

Equity traders. Sustained long-end yield increases compress equity valuations, particularly in rate-sensitive sectors such as real estate, utilities, and growth technology. The S&P 500 logged its worst single-day loss in months on Friday. Futures traders should monitor the relationship between the 30-year yield and the equity risk premium heading into Monday's open. For context on the equity selloff and what it means for positioning, see our earlier analysis: Fed Regime Change: Warsh Inherits S&P 500 Worst Day Since March.

Rates and bond traders. The 5.12% level on the US 30-year Treasury is significant technically and historically. If it breaks higher on sustained CPI pressure, forced selling from leveraged holders could amplify the move. Short positions in long-duration bonds have been profitable during this cycle. The key question is whether G7 coordination produces any policy signal that changes the trajectory.

Commodity and energy futures traders. Energy futures remain the primary signal for the entire risk complex. A G7 coordination signal, a diplomatic breakthrough on Hormuz, or a clearer Warsh rate signal could all create rapid dislocations across fixed income and commodity futures simultaneously. For detailed context on the oil supply situation driving these moves, see: Brent Crude at $108 as Iran War Drives Bond Yield Warning.

Potential Positives vs Negatives

Potential positives:

  • G7 coordination could produce a joint statement on emergency strategic petroleum reserve releases, providing near-term oil price relief and allowing inflation expectations to stabilize.
  • A Hormuz resolution, even partial, would rapidly reverse energy inflation expectations and drive a sharp rally in long-end bonds across all G7 markets.
  • A clear and credible signal from Warsh on the Fed's inflation tolerance could reduce uncertainty and allow bond markets to find a floor.
  • If Trump's diplomatic posture softens, a China-mediated channel for Iran talks could emerge following the Beijing summit.

Potential negatives:

  • G7 finance ministers may produce only language with no concrete action, leaving bond markets without a policy anchor heading into the week.
  • A Fed rate hike under Warsh could slow the economy while energy-driven inflation continues, creating a stagflationary environment that is difficult for both bonds and equities to navigate.
  • If the Hormuz closure extends into June, analysts estimate oil could exceed $150 per barrel, which would push CPI materially above 4% and force further bond repricing across all maturities.
  • Sustained gilt pressure in the UK adds a contagion risk: if UK fiscal credibility comes into question, European sovereign spreads could widen, adding another layer of bond market stress.

What Could Happen from Here

Base case. G7 finance ministers issue a joint communique acknowledging inflation risks and signaling coordinated policy vigilance, but produce no immediate supply-side action. Bond markets remain elevated but stable heading into the week. WTI holds above $100. The Fed under Warsh signals a data-dependent hold for June while monitoring incoming CPI data. US 30-year yields trade in a range of 5.00% to 5.20%.

What would confirm this path: a measured G7 communique without emergency measures and Warsh's first public comments emphasizing patience.

Upside case. A diplomatic breakthrough on Hormuz, through direct US-Iran talks or Chinese mediation, triggers a sharp reversal in oil prices. Long-end Treasury yields retrace toward 4.80% as inflation expectations reset lower. Equities stage a relief rally into early summer.

What would confirm this path: a credible joint statement from the US, EU, and China committing to a Hormuz reopening timeline, or a new ceasefire framework announced through a third-party mediator.

Downside case. G7 produces no substantive action; Warsh signals a rate hike is on the table at the June FOMC meeting; Iran signals it will not negotiate on current terms. Long-end yields push toward 5.50%, UK gilts continue to accelerate, and equities enter a more sustained correction.

What would invalidate this path: a surprise diplomatic offer accepted by Tehran, or a concrete OPEC+ emergency output increase partially offsetting supply disruption.

What Traders Should Watch Next

  • G7 finance ministers communique from Paris, expected Monday, May 18 (watch for language on emergency reserves, inflation coordination, and monetary policy signaling).
  • Any Warsh public statement or Fed communication in the coming week, particularly on the inflation threshold for a rate hike.
  • Weekly US crude inventory data: API report Tuesday, EIA report Wednesday; signs of emergency reserve drawdowns would be market-moving.
  • Iran's response to Trump's latest diplomatic posture following the Beijing summit and his "not enough" comment on the ceasefire offer.
  • UK 30-year gilt yields: any sustained move above recent 28-year highs would risk contagion into European sovereign debt markets.
  • Japan's 30-year yield: a sustained hold above 4% could force Japanese institutional investors to repatriate capital, adding selling pressure to global bonds.

FAQ

Why are long-end yields rising faster than short-end yields right now?
Short-end yields stay anchored closer to the Fed's current policy rate. Long-end yields reflect inflation expectations and the term premium, which have risen sharply because markets believe the Hormuz closure will keep energy prices elevated for months, sustaining above-target CPI well into the second half of 2026. This curve steepening is a classic signal that markets are pricing persistent inflation rather than a brief spike.

How does the G7 finance ministers meeting differ from the G7 leaders summit?
Finance ministers and central bank governors meet separately and more frequently than heads of government. Their mandate covers monetary policy coordination, financial stability, and fiscal response. A finance ministers communique typically focuses on economic outlook and policy signals. It can meaningfully move bond markets by clarifying whether governments plan to release strategic reserves, issue emergency debt, or signal central bank coordination.

Sources

G7 leaders at a roundtable meeting, Schloss Elmau Summit
G7 leaders at a roundtable meeting during the Schloss Elmau Summit. Credit: Japan Cabinet Secretariat / CC BY 4.0

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Header image source: wikimedia by EU2016 SK. License: CC0.