Global markets stumble amid bond market turmoil, stagflation risks, and inflation surprises

Global markets are under renewed pressure as rising bond yields, fiscal risks in the US, and hotter-than-expected inflation data from the UK fuel investor concerns. US credit risks, driven by ballooning deficits and political discord, have reawakened the bond vigilantes — forcing policymakers and investors to confront a fragile fiscal and economic environment. Meanwhile, stagflation fears are building amid stubborn inflation and slowing growth.

Bond market sounds alarm on Trump’s tax plan and US deficit path

The US bond market sent a stark warning to Washington on Wednesday as 30-year Treasury yields surged past 5.1%, a level not seen in nearly two decades. Investors are growing alarmed by President Trump’s proposed multi-trillion-dollar tax cuts, which threaten to balloon the deficit further.

• Weak demand at a 20-year bond auction triggered a fresh wave of selling
• Moody’s downgrade of US credit last week continues to rattle sentiment
• Republican infighting over Medicaid and SALT deductions is delaying consensus on the bill
• Public debt has surged to nearly $30 trillion, with interest payments alone hitting $880 billion in 2024

A new version of the tax bill was introduced, but concerns persist over long-term fiscal sustainability

The episode has reawakened the bond vigilantes — investors who drive yields higher to enforce fiscal discipline — reminiscent of the early 1990s and post-crisis Europe.

Stagflation fears intensify as Dimon warns of dual threats

JPMorgan CEO Jamie Dimon warned that the US could face stagflation — a combination of elevated inflation and stagnant growth — as geopolitical instability, mounting deficits, and policy uncertainty undermine confidence.

• Dimon praised the Fed’s decision to pause and observe but noted risks remain elevated
• Trump’s erratic tariff policies are cited as a key drag on business expansion and investment banking activity
• JPMorgan cut its forecast for deal fees as clients delay decisions due to economic uncertainty
• Dimon acknowledged that investors may continue reducing their exposure to dollar-based assets

The 30-year bond yield rose as much as 13 basis points to 5.10%, reinforcing investor aversion to long-duration US government debt.

UK inflation surprise forces market repricing

In the UK, inflation surged to its highest level in 15 months in April, pushing traders to scale back bets on Bank of England rate cuts.

• Headline CPI jumped to 5% from 2.6%
• Core inflation hit 8%, while services inflation rose to 5.4%
• The pound rallied to $1.3469, its strongest level since early 2022
• The BOE may now pause rate cuts or slow the pace of easing through the second half of 2025

Sticky services inflation, wage growth, and rising utility prices — dubbed “awful April” by British media — paint a picture of persistent domestic price pressures, complicating the policy outlook for the BOE and Rishi Sunak’s government.

Markets pull back as sentiment sours globally

Risk appetite deteriorated further in global markets as bond volatility and political tension eroded confidence:

Asian equities fell sharply:

• MSCI Asia Pacific: -0.6%
• Hang Seng: -0.9%
• Topix: -0.6%
• S&P 500 futures: -0.1%
• Nasdaq 100 futures: +0.2% (tech shows relative resilience)
• Euro Stoxx 50 futures: -0.7%
• Bitcoin: surged to a record $111,000, decoupling from equities as a perceived hedge
• Gold: +0.5% on safe-haven demand

In bonds:

• 10Y US yield: 4.59% (flat)
• 30Y US yield: +5.1% (near cycle highs)
• Australian 10Y: +2 bps to 4.47%

In FX:

• Dollar Index: little changed
• Yen: +0.3% (fourth day of gains)
• Offshore yuan: steady at 7.20

The bond market is exerting real pressure on both markets and policymakers, with rising yields now becoming a central risk for equities. At the same time, inflation surprises in the UK and warnings from major financial executives reinforce the complexity of the macroeconomic landscape.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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