Last week in bond markets, many global bonds continued their selloff—US treasury prices declined as yields rose in response to higher-than-expected consumer and wholesale inflation, against a backdrop of geopolitical uncertainty and leadership transition at the US Federal Reserve. US corporate credit spreads tightened to pre-war (February) levels. Globally, select UK (Gilts) yields climbed to nearly three-decade highs, and a US hyperscaler sought to market its first-ever Japanese yen-denominated bonds. Inflation concerns fuelled by the war in Iran has pushed yields higher and significantly reduced the chances of a 2026 rate cut in the US.

US treasuries sold off, pushing yields higher across most of the curve, in response to headline consumer and wholesale inflation data exhibiting price pressures stemming from the US-Iran war. April’s Consumer Price Index (CPI), including energy and food, rose 3.8% year-over-year— the highest reading since May 2023, largely driven by elevated oil and gasoline prices. Market expectations for a possible rate hike by the US Federal Reserve (Fed) in 2026 rose to around 28% for the December meeting, based on futures market pricing. US Fed Chair Jerome Powell's eight-year term concluded, and the Senate confirmed Kevin Warsh as the new Fed chair. The US$25 billion 30-year treasury auction finished at 5.046%—the highest level since 2007, as investors witnessed a greater premium on longer-term debt amidst geopolitical/economic uncertainty. Globally, the 30-year UK government bond yield hit a closing high of 5.77%, the highest levels since 1998, driven in part by global energy price pressures and concerns over the UK economy.

US corporate investment grade credit spreads, which measure the additional yield or risk premium for taking on the credit risk of corporate bond issuers over lower-risk government bonds (treasuries), declined to 0.74%, which was amongst the tightest levels this year and off the mid-March period when US-Iran tensions escalated. This spread compression suggests that investors have lowered the credit risk premium on investment grade issuers given the strong appetite for investment grade bonds. These historically tight credit spreads are providing a relatively less expensive source of capital for corporate issuers as new bond issuers have come to market to lock in relatively favourable funding conditions; Wells Fargo launched a US$6 billion three-part deal, three-to six-year maturities, with the longest-dated fixed-to-floating bond priced to yield 4.577% (Bloomberg). Outside of US-denominated bond issues, Alphabet continued to diversify its non-US denominated funding sources as the company spends more on capital expenditures tied to AI infrastructure. Alphabet debuted its first-ever yen bond deal, raising ¥576.5 billion ($3.6 billion USD) across three to 40-year maturities. This follows its recent record-breaking sales of €9 billion and $8.5 billion CAD earlier this month. The yen offering included a 10-year bond with a 3.189% coupon. Bloomberg reported the offering as the largest yen-denominated bond issuance by a foreign company on record.