Renewed US-Iran tensions sparked a global bond selloff earlier last week, driving yields higher amidst rising oil prices and inflation expectations. The two-year Canadian government and US Treasury yields both rose roughly 7 basis points, closing the week at 2.82% and 4.21%, respectively, as central bank rate hike expectations intensified. Against this backdrop, a major hyperscaler returned to US bond markets with a US$25 billion issuance, following its record US$37 billion deal in March—which remains the largest US corporate bond offering this year.

Amidst renewed US-Iran tensions and concerns over energy price inflation, swap markets predicted a roughly 41% probability of a December rate hike by the Bank of Canada (BoC), while no rate changes are expected at the upcoming BoC decision this Wednesday according to Bloomberg consensus economist expectations. Markets are also fully pricing in an expected 25-basis-point increase from the US Federal Reserve by year-end. The Eurozone faced sharper hike repricing, largely due to its status as a net energy importer. Major economies like Germany, Italy, and Spain rely on energy-intensive industries while possessing limited domestic fossil fuel production—a combination that can amplify the pass-through of rising energy import costs into domestic consumer prices. Consequently, the probability of a September European Central Bank (ECB) hike jumped from roughly 50% to 73%. Generally, when inflation persists and markets anticipate central bank rate hikes, investors demand higher yields on fixed-income investments to offset the erosion of purchasing power—all else equal.

Bank of America, whose team of Merrill Lynch advisors is known as the “Thundering Herd” from its iconic bull logo and vast advisory business influence, extended a US$520 million credit line to OpenAI to expand its relationship with the company. This could help Merrill Lynch position for the upcoming OpenAI IPO.. Not only are credit lines being extended, Amazon, Alphabet, and Meta are increasingly tapping into global bond markets for funding. Last week, Amazon issued a US$25 billion, eight-part investment grade offering, rated AA by S&P. These bonds featured maturities spanning three to 40 years, predominantly fixed coupons, ranging from 4.60% to 6.25%. In other corporate bond news, ratings agency S&P Global downgraded Oracle Corp. to BBB-, the lowest investment-grade rating, citing rising capital expenditure requirements and an uncertain path to profitability in a competitive AI landscape.