TOKYO/LONDON, Sept 1 (Reuters) - Global bond yields hit major new highs on Tuesday as renewed fighting in the Middle East lifted oil prices and traders braced for interest rate hikes, putting pressure on stock markets around the world.
Japan's 10-year benchmark yield hit 3% for the first time since 1996, pushing up government borrowing costs, as investors also fretted about ever higher public debt.
Britain's 10-year yield hit its highest since 2008 above 5.24%, while the equivalent German yield rose to a 15-year high at 3.36%.
"I think there is now something of a sense of resignation — tinged with helplessness — about rising interest rates," said Ryutaro Kimura, a senior strategist at BNP Paribas Asset Management in Tokyo, of the march upward in Japanese borrowing costs, which for years have been a reliable anchor for world markets.
Higher oil prices and renewed U.S.-Iran fighting are stoking worries about inflation, which is negative for bonds, while Federal Reserve Chair Kevin Warsh gave a speech last week that has led traders to raise their bets on U.S. rate hikes this year.
The 10-year U.S. Treasury yield , a benchmark for prices across asset classes, rose to 4.79% — its highest since early 2025.
"I think really most of this (bond) sell-off has been a re-assessment of Fed policy," said Andrew Lilley, chief rates strategist at Barrenjoey, an investment bank in Sydney.
"I think the Fed hikes in September, and I think it's the beginning of the three-rate hike cycle at minimum."
STOCKS WILT AS BORROWING COSTS RISE
U.S. stock futures fell as bond yields and oil prices rose, with contracts for the S&P 500 down 0.6%. Europe's continent-wide STOXX 600 index (.STOXX), fell 0.7%.
Hong Kong's Hang Seng (.HSI), dropped 1%, with the weak tone set by the lacklustre debut of clothier Shein Global (0625.HK). Shares slid 8% to leave Shein's market value at less than a quarter of where it peaked, pre-listing, in 2022.
Higher yields could put pressure on tech companies that are borrowing massively in bond markets to fund AI investments, said Aneeka Gupta, a senior strategist at WisdomTree.
"The higher yields go, the bigger strain it provides to this particular sector, which is one of the largest growth drivers of equity markets," she said. "I think that is resulting in that spillover that is taking place in equity markets today."
Rising oil prices were driving global bond yields higher on Tuesday as renewed conflict in the Middle East dimmed prospects for any reopening of the Strait of Hormuz.
Brent crude rose 2% to $92.20, while Europe's benchmark natural gas price climbed towards its highest since early 2023.
U.S. President Donald Trump has threatened further strikes against Iran after the first exchange of fire in a month. Meanwhile, stepped-up fighting between Russia and Ukraine has pushed wheat prices up near three-year highs.
The U.S. dollar picked up on Tuesday, benefiting from its safe-haven status as bonds and stocks fell.
The euro slipped 0.2% to $1.16 and the dollar rose 0.1% against the yen to 159.9.
Traders on Tuesday were pricing in a 65% chance of a Fed rate hike in September, according to CME's FedWatch tool, up from 40% a week ago.
Money markets were also fully pricing in a further rate hike from the European Central Bank this month.
Reporting by Satoshi Sugiyama in Tokyo, Tom Westbrook in Singapore and Harry Robertson in London; Editing by Shri Navaratnam, Muralikumar Anantharaman, Christopher Cushing and Hugh Lawson
