Brent crude rose more than 2% to approximately $106.60 a barrel in Asian trading on Monday, reigniting the global bond market selloff that has been building throughout the Iran war. US 10-year Treasury yields climbed 0.04 percentage points to 5.2%, resuming the selling pressure that briefly eased last week. Futures for the S&P 500 fell 0.3% and the Nasdaq 100 dropped 0.6%, while South Korea’s Kospi and China’s CSI 300 slipped 2.5% and 2.2% respectively as both markets reopened after mid-autumn festival holidays.
Japanese short-dated government debt was among the most exposed. Yields on two-year Japanese government bonds rose as much as 0.05 percentage points to 1.97%, a level not seen since 1995, before settling at approximately 1.96%. The move followed the release of Bank of Japan minutes from its July meeting, which revealed that some board members had called for a faster pace of rate increases to better contain inflation expectations.
Related: Yen Falls After Bank of Japan Interest Rate Hike
Chinese 10-year government bonds were flat at 1.67%, standing apart from the broader selloff as Beijing’s monetary policy remains on a different trajectory from Western and Japanese central banks.
AI is Adding Fuel to the Fire
Beyond oil, a second force is contributing to the global bond market selloff. Corporate bond issuance tied to funding the AI infrastructure build-out has surged, creating what analysts are describing as a “competition for capital” that is pushing yields higher independently of central bank decisions. The AI boom is driving vast amounts of debt issuance from technology companies and data centre operators racing to secure computing capacity, adding supply pressure to a bond market already contending with record government borrowing. See our earlier coverage of how the Cerebras IPO and the broader AI chip race are absorbing institutional capital at an accelerating pace.
The combination of oil-driven inflation expectations and AI-driven corporate issuance is unusual and makes the current bond market environment harder to navigate than a standard rate cycle. Normally rising yields reflect either growth optimism or inflation fear. Right now they reflect both simultaneously, alongside a structural supply increase from corporate borrowers that has nothing to do with either.
The Global Bond Market Selloff Has Multiple Engines Now
What concerns me most about Monday’s moves is not any single data point but the number of independent pressures converging on the same market at the same time. Oil above $106 keeps inflation expectations elevated. The Federal Reserve has already raised rates and signalled more increases. The Bank of Japan is tightening faster than its own board had consensus for. Corporate AI-related issuance is competing with sovereign debt for the same pool of capital. And US Treasury bill issuance is approaching $1 trillion for the year, adding further supply to a market that is already stretched.
Each of these pressures is manageable in isolation. However, together, they are creating a bond market environment where there is no obvious buyer of last resort willing to step in and stabilise yields. The ECB, the Fed and the BoJ are all tightening or holding. Sovereign wealth funds are conserving capital to manage their own domestic pressures from the Iran war. And retail investors, who might normally be attracted by 5.2% Treasury yields, are being drawn toward AI equity trades instead. When I look at this configuration, I do not see a market on the verge of a crisis, but I do see one with very little margin for an additional shock, and in the current geopolitical environment, additional shocks are not in short supply.
