U.S. and European government bond markets sold off heavily Thursday in the wake of record-setting oil price rises as investors count the cost of faster inflation and higher interest rates.
U.S. 10-year Treasury yields, which move in the opposite direction of prices, rose 8 basis points to 2.46%, adding to the 60 basis point increase seen since the November 8 election - the biggest move in seven years - and taking the benchmark borrowing cost to the highest level since July 2015.
Long-dated Treasury bonds, which are the most sensitive to inflation as it erodes the present value of future fixed payments, fell sharply Thursday as well, taking yields to 3.12%
In Europe, benchmark 10-year German bunds rose 9 basis points in European trading to change hands at 0.33%, the highest since February, leading yield rises around the region and mirroring the sell-off seen in U.S. Treasury markets.
Bond investors are being forced to re-calibrate their assumptions for growth and inflation both in the wake of Wednesday's 9% increase in crude oil prices, driven by the first OPEC production cut since 2008, and the anticipation of more significant fiscal stimulus - and faster borrowing - from President elect Donald Trump.
Oil prices have risen more than 13% in the past two session as traders re-set supply expectations after OPEC members agreed to trim ouput by 1.2 million barrels per day from January. A record 700,000 contracts for Brent crude deliveries in March, the global benchmark, changed hands Wednesday, representing a value of more than $39 billion.