Oil Surge Ignites Inflation, Investors Dump Bonds

Brent crude briefly soared to $119.50 a barrel, with WTI also surpassing $100, as traffic through the Strait of Hormuz halted and airstrikes intensified. This geopolitical tension has led investors to offload government bonds, causing yields to jump across the U.S., Eurozone, and U.K. The 10-year U.S. Treasury yield hit a one-month high of 4.216%, while the German Bund and U.K. gilt yields also reached multi-month highs. Concurrently, demand for safe-haven assets has surged, with the DXY dollar index reaching a three-month high of 99.695 and the Swiss franc strengthening to its highest level against the euro since 2015.

The Norwegian krone also benefited, hitting a two-and-a-half-year high against the euro due to Norway's oil exporter status. The market's outlook on monetary policy has drastically shifted; expectations for Federal Reserve interest-rate cuts this year have been slashed from 65 basis points to 36.5 basis points, while the European Central Bank is now anticipated to hike rates by 50 basis points.

The Bank of England also faces increased pressure for potential rate hikes, reflecting concerns that the conflict will be prolonged rather than short-lived.