U.S. Treasury and eurozone government bond yields rose further on Wednesday following similar moves in Asian bonds, as renewed hostilities between the U.S. and Iran pushed oil prices higher, adding to inflation fears and prospects of a Federal Reserve interest-rate hike. Yields again hit significant highs, with 10-year German Bund yields reaching their highest since 2011 and yields on U.K. 10-year government bonds, known as gilts, climbing to their highest level since 2007. The two-year U.S. Treasury yield rose to 4.410%, the highest since January 2025, while the 10-year Treasury yield increased to 4.812%, the highest since November 2023. The U.S. and Iran again exchanged fire Tuesday, causing the price of Brent crude oil to rise 1% to $95.62.

In European opening trade, the 10-year German Bund yield rose to a high of 3.381%, while the 10-year U.K. gilt yield hit 5.268%, LSEG data showed. This came after Japan’s 10-year government bond yield hit its highest level since September 1996 during Asian trade. The global bond selloff continues on the back of renewed tensions between the U.S. and Iran and rising oil prices, Christian Hantel, portfolio manager at Vontobel, said in a note. Investors also continued to digest Federal Reserve Chairman Kevin Warsh’s Jackson Hole speech on Friday, where he warned about inflation risks and reinforced the prospect of higher interest rates.

Importantly, bond markets aren’t in a panic mode and are functioning properly, analysts at Allianz Research said. Renewed tensions in the Middle East since July and destructions of refining capacity in Russia have raised energy costs again, in particular gas prices, leading to higher inflation and central-bank rate-rise expectations. This explains the lion's share of the latest increases in yields. In the eurozone, demand for bonds will come under intense scrutiny this month as Europeans return from holidays and national debt agencies also resume auctions. The Investment Institute by Uni Credit forecasts gross government bond issuance of 120 billion euros ($139.12 billion) in the eurozone in September, leaving the net supply positive as redemptions will amount to 86 billion euros.