Global bond markets are repricing inflation risk at a speed not seen since the financial crisis. The US 30-year Treasury yield slightly retreated this morning after hitting 5.2% the previous day, its highest level since 2007, while long-dated bond yields in the UK and Japan remain near multi-decade highs.

Investors are pulling money from government debt as fears grow that inflation will remain stubbornly high amid the Iran war, rising energy prices, and widening fiscal deficits. CNN reported yesterday that the US 10-year Treasury yield has also surged toward 4.7%, reflecting expectations that interest rates may stay higher for longer. Bloomberg reported today that a global gauge of sovereign debt yields has reached its highest level since July 2008.

The immediate trigger is oil. Brent crude has climbed above $110 a barrel after the closure of the Strait of Hormuz disrupted global energy flows, according to Bloomberg. Higher energy prices are feeding through into transport, food, and industrial costs, raising concerns that inflation will spread deeper into the global economy.

Markets increasingly expect central banks to maintain elevated interest rates and possibly tighten further. The arrival of Kevin Warsh as the next Federal Reserve chair has reinforced expectations of a more hawkish policy stance. Investor sentiment has shifted accordingly. Bondholders are demanding higher compensation for inflation risk and fiscal uncertainty, while equity investors are reassessing valuations in a higher-rate environment.