For all the hand-wringing over war-related inflation fears, there are signs that other drivers are having as much a bearing on longer-term borrowing costs.
In the US, so-called real yields, which strip out inflation, have had a greater impact, indicating bond investors aren’t just worried about price pressures from the Iran war.
Other culprits include signs already large public debt burdens will swell even further, fallout from the AI investment boom and the mounting chance central banks such as the Federal Reserve will raise rather than cut interest rates.
The speculation, underscored by a Bloomberg analysis and highlighted by strategists at ING Bank NV, Goldman Sachs Group and Barclays Plc, is that the recent jump in some long-term yields will not fully reverse even if the inflation spurred by costlier oil retreats.
“The argument that duration is selling off globally due to inflation fears is hard to square with market pricing of medium- and long-term inflation risk,” said Jonathan Hill, head of US inflation strategy at Barclays.
The so-called neutral rate is the level which neither spurs nor slows the economy.