A selloff in global bonds has interrupted a rally in stocks, amplifying concerns that central banks may need to tighten policies to manage inflation amid persistently high oil prices.
Global equities saw a decline, with the S&P 500 dropping 1%. Technology stocks were particularly impacted after a strong performance from 2026 lows. The yield on US 10-year Treasuries surpassed 4.5%, while Japan’s 30-year yield reached 4% for the first time. In the UK, a political crisis pushed long-bond rates to a 28-year high. The US dollar appeared set for its best week since March, while US crude oil prices hit $105.
Amid the ongoing conflict in Iran, there is increasing speculation that a potential closure of the Strait of Hormuz could exacerbate energy supply disruptions, heightening inflationary pressures. Recent data highlights rising prices attributed to the crisis, leading traders to increase expectations for Federal Reserve interest rate hikes.
President Trump indicated that he did not urge Chinese President Xi Jinping to press Iran regarding the Strait of Hormuz, reflecting a lack of progress in negotiations. According to Xinhua, China’s Foreign Minister Wang Yi emphasized the need to reopen the strait quickly.
Florian Ielpo from Lombard Odier Asset Management noted that geopolitical improvements might provide short-term relief, but reducing inflation will take more time. Markets are adjusting to this reality.
“The global rise in bond yields is undermining risk sentiment, fueled by inflation concerns, central bank hike expectations, and worries surrounding government debt as countries attempt to mitigate increasing energy costs,” Angelo Kourkafas from Edward Jones stated.
The current bond market, shaken by fears of accelerating inflation, presents an early challenge for incoming Fed Chair Kevin Warsh. Subadra Rajappa at Societe Generale Americas highlighted the importance of managing inflation expectations, warning that escalating expectations could create significant challenges.
While central banks can’t directly address an energy shock through rate hikes, the outlook for inflation remains complicated by potential fiscal stimulus, Kourkafas noted. He predicts that the Fed will likely avoid overreacting to what might be a temporary scenario.
In addition, expectations for stock market performance could be hindered if Treasury 10-year yields rise to 5%, a threshold known to depress price-to-earnings ratios, as mentioned by Lori Calvasina at RBC Capital Markets.
Despite the bond market turmoil, a dip in semiconductor stocks that had previously driven a rally since March contributed to Friday’s market decline. Nevertheless, the S&P 500 was poised for its seventh consecutive weekly advance, the longest winning streak since December 2023.
“There are indicators of extensive positioning and extreme optimism that could lead to a necessary consolidation period,” said Mark Hackett of Nationwide. “Ultimately, if the macroeconomic and earnings environments remain positive, the most likely trend is upward.”
Corporate Highlights:
- President Trump discussed artificial intelligence guardrails with Xi Jinping, mentioning Nvidia Corp.’s H200 chips during their two-day summit in Beijing.
- Boeing Co. appears to have secured a long-awaited order from China during Trump’s visit, though the specifics regarding numbers, aircraft type, and timing remain unclear.
- Bill Ackman reported that Pershing Square has taken a new stake in Microsoft Corp., capitalizing on a recent decline in the company’s stock price.
- Applied Materials Inc., the largest US supplier of semiconductor equipment, provided sales and profit forecasts that significantly exceeded analysts’ expectations, citing surging demand for AI computing and memory chips.
- Alphabet Inc. issued ¥576.5 billion ($3.6 billion) in bonds, marking the largest ever yen deal by a non-Japanese company, as competition for data center and AI infrastructure funding intensifies.
Some of the Main Moves in Markets:
Stocks:
- The S&P 500 fell 1% as of 1 p.m. New York time.
- The Nasdaq 100 declined 1.2%.
- The Dow Jones Industrial Average dropped 0.9%.
- The MSCI World Index decreased by 1.2%.
Currencies:
- The Bloomberg Dollar Spot Index increased by 0.4%.
- The euro fell 0.3% to $1.1630.
- The British pound decreased 0.5% to $1.3330.
- The Japanese yen weakened by 0.2% to 158.71 per dollar.
Cryptocurrencies:
- Bitcoin declined by 2.6% to $79,241.84.
- Ether fell 3.2% to $2,223.36.
Bonds:
- The yield on 10-year Treasuries rose by 11 basis points to 4.59%.
- Germany’s 10-year yield increased by 12 basis points to 3.17%.
- Britain’s 10-year yield rose by 18 basis points to 5.17%.
Commodities:
- West Texas Intermediate crude rose by 3.9% to $105.12 per barrel.
- Spot gold fell by 2.3% to $4,544.84 per ounce.
More stories are available on Bloomberg.com.
Published on May 16, 2026.
