Global Bond Market Plummets as US Yields Breach 5% Amid Energy Crisis

Sat, 16 May 2026, 23:19 WIB | By Wisnu Arto Subari | Source: MEDIA_INDONESIA | Economy

Volatilitas tinggi masih berpotensi berlanjut hingga akhir Mei.

The global bond market experienced a significant sell-off on Friday (May 16). Investors are bracing for persistently high inflation amid the ongoing energy crisis and geopolitical tensions in the Middle East.

Mild crude oil prices surged after the summit between the United States and China ended without any indication that Beijing would pressure its ally, Iran, to reopen the Strait of Hormuz. The closure of this vital shipping lane has sparked concerns about a prolonged disruption to global energy supplies.

This situation worsened sentiment in the US debt market. Recent consumer and producer inflation data, which were higher than expected, triggered weak demand in the auction of long-term US government bonds (Treasuries).

On Wednesday, the US Treasury sold $25 billion worth of 30-year bonds, or approximately Rp438 trillion, with a yield reaching 5%. This is the first time since 2007 that the yield on 30-year bonds has exceeded this level. Previously, no bonds of this tenor had an interest rate above 4.75%.

This situation is in stark contrast to the conditions in mid-February, just before the US-Israel war against Iran began. At that time, Treasury offerings recorded the highest demand in the history of 30-year auctions.

The increase in yields has directly boosted federal government borrowing costs, which now reach $1 trillion per year. This is exacerbating the budget deficit and adding to the country’s total debt burden. The Treasury recently announced expectations for larger borrowings than previously projected this quarter due to weaker-than-expected cash inflows.

A series of supply shocks – from the Covid-19 pandemic, Russia’s invasion of Ukraine, trade tariffs during the Donald Trump era, to the current war in Iran – have kept inflation high. This has made Federal Reserve (The Fed) officials hesitant to continue with plans to cut interest rates.

Finance Minister Scott Bessent tried to reassure the market by stating that the current energy shock is only a temporary disruption. He predicted that US oil prices would fall within six to nine months as domestic production reaches record levels and the United Arab Emirates’ exit from OPEC triggers a surge in supply.

However, bond investors appear to disagree. Yields in the US, Germany, Japan, and the UK all surged on Friday, causing stock markets to plummet. As long as traffic in the Strait of Hormuz does not return to normal, pressure on bond yields is expected to continue.

“Long-term interest rates are now dictating monetary policy,” wrote Peter Boockvar, Chief Investment Officer at One Point BFG Wealth Partners. (Fortune/I-2)

The exchange rate of the rupiah has weakened in recent times. Chairman of Commission XI of the Indonesian House of Representatives, Mukhamad Misbakhun, asked the government to strengthen mitigation efforts to prevent imported inflation.

An economist from Permata Bank stated that Indonesia’s economic growth is still supported by government spending, while the private sector has not yet become the main driver.

Speaker of the DPR, Puan Maharani, reminded about the impact of the Middle East conflict and tensions in the Strait of Hormuz on the rupiah, energy prices, inflation, and the purchasing power of Indonesian people.

Bank Mandiri revised its projection for Indonesia’s inflation at the end of 2026 to 3.5%, following an increase in non-subsidized fuel and LPG prices.

The Trade Office of Padang City predicts a surge in household consumption of 30% to 50% throughout May 2026.

Indian Prime Minister Narendra Modi asked citizens to return to WFH and reduce foreign travel due to the surge in global oil prices as a result of the Iran conflict.

Saudi Aramco booked a net profit of $32.5 billion in Q1 2026, driven by rising oil prices due to the Iran conflict and the blockade of the Strait of Hormuz.

CEO of Saudi Aramco, Amin Nasser, warned of a global energy crisis due to the closure of the Strait of Hormuz, which triggered a shortage of global crude oil supplies.

A JPMorgan analyst warned that US gasoline prices could reach $5 per gallon due to disruptions in fuel supply from the Middle East conflict and the Iran crisis.

The surge in fuel prices due to the war in Iran is squeezing small gas station owners in the US. Profit margins are shrinking amid soaring operating costs.

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