Global Markets Shaken by Geopolitical Tensions and Interest Rate Hike Expectations
Concerns over conflicts in the Middle East and potential interest rate hikes by central banks have pushed global bond yields to multi-year highs while increasing selling pressure on stock markets.
The escalation of tensions in the Middle East driving up oil prices, coupled with hawkish signals from the Fed and other central banks, has pushed borrowing costs and bond yields in global markets to their highest levels in recent years.
Geopolitical Pricing in Oil
Fears that the escalating tension and conflicts in the Middle East will be prolonged have triggered upward movements in oil prices. Brent crude climbed to $92 on Tuesday and up to $97 yesterday.
Markets are now pricing in not only the risk of war, but also the cost of the conflict remaining unresolved. The risk premium is expected to remain high until oil traffic through the Strait of Hormuz returns to normal.
Peak in Global Bond Yields
High tension in oil prices and central bank interest rate hike expectations have driven global bond yields to 20-year highs, increasing borrowing costs.
The US 10-year Treasury yield hit its highest level since November 2023 at 4.82%, while the 2-year Treasury yield reached its highest since January 2025 at 4.42%.
Deepening Selling Pressure in Stock Markets
As sharp increases in bond yields diminished the appetite for risky assets, selling pressure came to the forefront in European and Turkish stock markets.
While the BIST 100 index on Borsa İstanbul ended the day down 1.25% at 14,050 points, the downward trend also accelerated in European indices.
Hawkish Messages from Central Banks
Federal Reserve Board Governor Michael Barr stated that they must act decisively to raise interest rates if inflation does not slow down sufficiently.
While investors are pricing in an approximately 70% probability of a Fed rate hike at this month's meeting, ECB and CBRT decisions are also being monitored in September.
Debt and Interest Rate Warning from the IMF
International Monetary Fund Managing Director Kristalina Georgieva issued warnings, stating that rising debt, inflation, and interest rate risks remain high.
Georgieva stated that rising bond yields have increased governments' borrowing costs and heightened concerns regarding debt sustainability.