Tough week for bonds is behind us, with US 10Y reaching 5.00% at one point while German Bund pushed through 3.50% and neither has shown much sign of pulling back. That is happening against a backdrop where inflation continues to be dominant concern on both sides of the Atlantic. It’s also happening despite the Fed’s own hawkish hike, echoed by similar 25bp moves from the ECB and BoJ, while the BoE held on a split vote.

That combination is the actual story, more than any single decision – policy is tightening across the globe at once, and the long end isn’t cooperating. Normally, those two things move together. A round of synchronized hikes should flatten the curve; short rates rise, inflation expectations get anchored, and term premium eases as investors trust that central banks are successfully taming inflation. What’s happening instead looks more like a coordinated bear-steepening: front ends are adjusting to higher cash rates as expected, but the long end is pricing something policy rates alone can’t fix. Part of that is supply-side pressure – the BoE’s decision to run its gilt book down to zero by 2034 adds roughly £46 billion a year of paper to a market that’s already digesting heavy Treasury and Bund issuance, and Washington’s own buyback program has proven too small to offset it on the US side. Part of it is a genuine repricing of how much central banks will ultimately need to do, and for how long, to bring inflation back to target.

Oil supply disruption remains the biggest concern, with a US-Iran deal still nowhere in sight: last week, news broke that Saudi Arabia’s East-West pipeline had been damaged, driving Brent above $100 a barrel. The next day, however, reports suggested that roughly half the pipeline’s flow could be restored within days, much faster than initially feared, and that brought some relief. That pipeline carries approximately 7mm barrels of crude a day, a volume that matters given how uncertain traffic through the Strait of Hormuz remains. All of this suggests that the upside pressure on energy prices is still very real, and it’s something entirely out of central bankers’ hands. They fight inflation primarily through the demand side: higher policy rates raise the cost of credit, slow borrowing and investment, cool wage growth, and eventually bring spending back in line with supply. That toolkit works well against inflation generated by an overheating economy. It works far less directly against a cost-push shock landing through the energy bill, since tighter policy doesn’t put a single extra barrel on the market; it can only squeeze demand elsewhere hard enough to offset the price pressure, a slower, more painful trade-off. That’s the real uncertainty behind long-term yields: nobody’s sure how quickly inflation will come down, or whether it settles at a higher level than we’ve been used to. Until that’s clearer, yields have little reason to fall.

What stands out is that a hawkish, credible rate decisions haven’t been enough to calm the long end this time. The market’s focus seems to have shifted from whether central banks will hike enough to whether hikes can address the underlying problem at all. That question likely won’t be settled without either a genuine, lasting de-escalation in the Middle East, or clear evidence that demand is cooling enough to bring inflation down on its own. Until then, yields look more likely to stay elevated than to retrace meaningfully, and the move higher reads less like a rates story and more like a term-premium one, which points toward treating duration as a risk to manage carefully rather than a trade to add simply because rates have moved higher.