A selloff in global bonds halted a rally in stocks, with concern intensifying that central banks will be forced to tighten policy to keep inflation in check amid persistently elevated oil prices.
Equities dropped around the world, with the S&P 500 falling 1%. Technology shares bore the brunt of the selling after leading gains from 2026 lows. US 10-year yields topped 4.5% while Japan’s 30-year yield hit 4% for the first time. In the UK, a political crisis lifted long-bond rates to a 28-year high. The dollar was set for its best week since March. US crude rose to $105.
With no end to the Iran conflict in sight, speculation has grown that the effective closure of the Strait of Hormuz will deepen the energy disruptions that risk fueling inflation. Back-to-back data this week showed mounting war-driven price pressures, prompting traders to boost bets on Federal Reserve hikes.
President Donald Trump said he didn’t push his Chinese counterpart Xi Jinping to pressure Tehran to revive Hormuz, offering no sign of a breakthrough in the standoff over the waterway. China believes the strait should be reopened as soon as possible, Xinhua reported, citing Foreign Minister Wang Yi.
While a geopolitical advancement would help in the short term, inflation will take longer to come down, according to Florian Ielpo at Lombard Odier Asset Management. Markets are adjusting to that reality, he noted.
“Risk sentiment is being dented by a global rise in bond yields, driven by a combination of inflation concerns, expectations for central-bank hikes, and worries around government debt as countries look to cushion the impact of higher energy prices,” said Angelo Kourkafas at Edward Jones.
A bond market spooked by fears of accelerating inflation will be an early test for incoming Fed Chair Kevin Warsh.
“What is really, really going to be important for Kevin Warsh is keeping inflation expectations in check,” Subadra Rajappa at Societe Generale Americas told Bloomberg Television. “When inflation expectations start to get a bit unhinged, then he has a problem on his hands.”
Central banks cannot directly resolve an energy shock by raising rates, but the prospect of fiscal stimulus appears to be complicating the inflation outlook, Kourkafas noted. That said, he bets the Fed will avoid overreacting to what may prove to be a temporary situation.
Meantime, bullish calls on stocks will be challenged if Treasury 10-year yields hit 5%, a level that usually depresses price-to-earnings ratios,” Lori Calvasina at RBC Capital Markets told Bloomberg Television.
Aside from the bond rout, a pullback in chipmakers that had fueled a sharp rally since the end of March also dragged down the market Friday. Despite the losses, the S&P 500 was on track for a seventh straight weekly advance – the longest winning run since December 2023.
“There are signs of extended positioning and extreme optimism, which could lead to a natural and healthy period of consolidation,” said Mark Hackett at Nationwide. “Ultimately, however, if the macro and earnings environment remain supportive, the path of least resistance is higher.”
Corporate Highlights:
- President Donald Trump said he discussed guardrails on artificial intelligence with Chinese leader Xi Jinping, while adding that Nvidia Corp.’s H200 chips also came up during a two-day summit in Beijing.
- Boeing Co. appears to have secured its long-awaited order from China during Trump’s visit to the country, but whatever accord was reached remained nebulous on numbers, aircraft type and a sense of timing.
- Bill Ackman said Pershing Square has built a new stake in Microsoft Corp., taking advantage of a decline in the company’s share price to invest in a business that he said is stronger and more resilient than investors think.
- Applied Materials Inc., the largest US supplier of semiconductor equipment, gave sales and profit forecasts that far exceeded analysts’ estimates, fueled by soaring demand for AI computing and memory chips.
- Alphabet Inc. sold ¥576.5 billion ($3.6 billion) of bonds in the biggest ever yen deal by a non-Japanese company as competition to fund data centers and AI infrastructure intensifies.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 1% as of 1 p.m. New York time
- The Nasdaq 100 fell 1.2%
- The Dow Jones Industrial Average fell 0.9%
- The MSCI World Index fell 1.2%
Currencies
- The Bloomberg Dollar Spot Index rose 0.4%
- The euro fell 0.3% to $1.1630
- The British pound fell 0.5% to $1.3330
- The Japanese yen fell 0.2% to 158.71 per dollar
Cryptocurrencies
- Bitcoin fell 2.6% to $79,241.84
- Ether fell 3.2% to $2,223.36
Bonds
- The yield on 10-year Treasuries advanced 11 basis points to 4.59%
- Germany’s 10-year yield advanced 12 basis points to 3.17%
- Britain’s 10-year yield advanced 18 basis points to 5.17%
Commodities
- West Texas Intermediate crude rose 3.9% to $105.12 a barrel
- Spot gold fell 2.3% to $4,544.84 an ounce
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