The rapid rise in oil prices due to the increasing geopolitical tensions in the Middle East triggered concerns that inflation may be permanent. While the tension in the Middle East caused supply concerns originating from the Strait of Hormuz, the re-rise in energy prices was effective in increasing bond yields.
In addition, Saudi Arabia's closure of the East-West Oil Pipeline named "Petroline" with a daily capacity of 7 million barrels, which was commissioned as an alternative to the Strait of Hormuz, due to attacks from Iraq, triggered concerns about oil supply.
With these developments, expectations that the US Federal Reserve (Fed) will tighten monetary policy as part of the fight against inflation have strengthened. Strengthening expectations cause selling pressure in bonds.
In Europe, rising energy costs due to geopolitical risks in the Middle East have raised inflationary concerns. This situation increased concerns that interest rates in the region would remain high for a long time.
The European Central Bank (ECB) increased the three main policy rates by 25 basis points each, in line with expectations, in response to the energy crisis triggered by the ongoing tension in the Middle East and the escalating price pressures.
ECB President Christine Lagarde had warned that conflicts in the Middle East and recent developments in the Russia-Ukraine War would keep headline inflation "well above" the bank's 2 percent target for a long time.
Bond interest rates hit peaks in the region
Germany's 2-year bond interest is at its highest level since 2011 at 3.32 percent, 5-year bond interest at 3.38 percent since 2008, 10-year bond interest at 3.57 percent since 2009, 20-year bond interest at 3.89 percent since 2011, and 30-year bond interest at 3.91 percent since 2011. saw.
A similar situation occurred in the French markets. France's 2-year bond interest is the highest since 2023 at 3.54 percent, the 5-year bond interest is the highest since 2008 at 4.003 percent, the 10-year bond interest is the highest since 2008 at 4.55 percent, the 20-year bond interest is the highest since 2008 at 4.99 percent, the 30-year bond interest is the highest since 2002 at 5.1766 percent. rose to the level.
There is also selling pressure in the bond markets of the UK, which is not a member of the European Union. The UK's 2-year bond interest has reached its highest level since 2023 at 4.96 percent, 5-year bond interest since 2008 at 5.03 percent, 10-year bond interest at 5.43 percent since 2007, 20-year bond interest at 5.90 percent since 1998, and 30-year bond interest at 5.95 percent since 1998.
Although the Bank of England (BoE) is expected to keep the policy rate constant at its September meeting, the bank is expected to increase interest rates at its November meeting.
Unlike previous rate hike cycles, the factors that kept the term premium low in the past are no longer present
ABN AMRO Senior Interest Rate Strategist Larissa Fritz, in her assessment to the AA correspondent, said, "The Iran war triggered a new wave of inflation. This led market participants to expect central banks to increase interest rates and keep interest rates at high levels for longer." he said.
Stating that the deteriorating financial situation and the increasing supply of government bonds also caused the maturity premium to increase, Fritz said:
"The increase in term premium due to the increase in short-term interest expectations caused bond interest rates to rise to historically high levels. In previous interest rate increase cycles, such as the 2022-2023 period, the rise in short-term interest expectations also pushed bond interest rates up, but this effect was partially balanced by the negative term premium. Currently, such a stabilizing effect is not possible because the term premium rises with short-term interest expectations, which allows bond interest rates to rise to much higher levels."
