(Bloomberg) -- Bond traders are no longer pricing in any chance that the Federal Reserve will cut interest rates this year after the Bank of England stoked concern that global central banks may need to act soon against inflation.
Yields in Europe and the US climbed across maturities, with those on two-year US Treasuries — which are especially sensitive to expectations for Fed policy — higher by 11 basis points to 3.89%.
Bond traders erased their wagers on a rate cut in the US this year, with some even hedging for a potential hike in the coming months as oil prices surged again as the war in the Mideast raged on.
"This is all being driven by the Bank of England rate decision as markets are looking for 50 basis points of hikes now in 2026," said Tom di Galoma, managing director at Mischler Financial Group. "Bond markets in Europe are in free fall and that is driving US yields up as well."
He said flows were defined by an absence of buyers "and mainly selling taking place," with sentiment dominated by expectations for an extended conflict. "The Iran war that could go on for months instead of weeks is the current thought."
The move in yields accelerated, accompanied by high volumes in Treasury futures, after the Labor Department's weekly tally of new jobless claims declined unexpectedly. The figures signaled labor-market strength with the potential to further erode Fed policymakers' conviction that the US economy requires lower interest rates to support employment.
The BOE on Thursday voted unanimously to keep rates on hold and said it "stands ready to act" to tackle any inflation surge triggered by war in the Middle East.
--With assistance from Edward Bolingbroke.
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