A Second Wave of Inflation, Geopolitics, and Rising Bond Yields Are Becoming the Market’s Defining Risks

Increasingly, global asset managers are beginning to regard a second wave of inflation as the principal systemic threat facing financial markets over the coming years. Importantly, this is no longer viewed as the conventional post-pandemic inflation surge, but rather as a far more persistent and structurally embedded form of price pressure driven by geopolitics, and rising energy costs. Inflation is therefore gradually ceasing to be perceived as a temporary disturbance and is instead increasingly being treated as a defining characteristic of modern times.

Summer, meanwhile, is shaping up to be decidedly uncomfortable for markets. The D. Trump’s administration appears to be losing momentum, whilst investors are steadily approaching what many now regard as a genuine moment of reckoning.

As is so often the case, the clearest warning signal is emerging from the US bond market. A broad sell-off in Treasuries continues to gather momentum against the backdrop of rising oil prices — a combination that is becoming increasingly unsettling for investors. Yields on 30-year US Treasuries climbed to 5.185%, their highest since 2007 — broadly the same territory reached ahead of the 2008 financial crisis — before easing modestly following reports of progress in negotiations between the United States and Iran. Yet tensions have rather quickly resurfaced, with Trump once again issuing threats towards Iran. Meanwhile, yields on 10-year US Treasuries have risen to 4.58%, their highest level in more than a year, marking the sharpest weekly increase since Trump’s tariff crisis back in April 2025.

At this stage, even replacing the leadership of the Fed is unlikely to restore confidence fully. Increasingly, Wall Street appears to be preparing for a considerably more difficult environment. Rather than debating rate cuts, many analysts are now openly discussing the possibility of further tightening from the Fed amid persistently “sticky” inflation.

The US economy itself may soon find itself confronting what could fairly be described as a perfect storm of interconnected problems. Prices have once again begun rising faster than wages, whilst the White House appears unwilling even to contemplate meaningful spending restraint. At the same time, the enormous investment boom surrounding artificial intelligence continues consuming vast amounts of capital and energy, though it seems unlikely to become a catalyst for lower interest rates. The property market, however, may face considerably greater strain. According to several highly respected market observers, should 10-year Treasury yields establish themselves firmly above 4.70%, investors' behavior may begin shifting in ways that rather quickly evolve into a broader political problem.

Importantly, this is no longer merely an American story. The sell-off in sovereign debt has now assumed a distinctly global character. Yields on 30-year UK government bonds have climbed to their highest levels since 1998, whilst long-dated Japanese government bond yields have surged towards a record 4% — an extraordinary figure by Japanese standards. Rising global bond yields have now become sufficiently serious to dominate discussions amongst G7 finance ministers during their latest meeting in Paris.Trade smart with Headway