Global bonds

have surrendered their year-to-date gains as elevated

oil prices

stoke fears that inflation will reignite, triggering a selloff across fixed-income markets.

The Bloomberg Global Aggregate Index, which tracks total returns from investment-grade government and corporate bonds, is now flat for 2026, with the selloff extending Thursday after oil climbed back above US$100 a barrel. The index had been up as much as 2.1 per cent this year through Feb. 27, just before

U.S. President Donald Trump

launched an attack on Iran, underscoring how quickly the geopolitical shock has reversed sentiment.

U.S. Treasury yields climbed to multi-month highs this week as investors priced in the risk of a wider conflict, with many money managers betting that any inflationary pressure would outweigh a traditional flight to sovereign bonds as a haven. Corporate-debt investors are also growing wary of private credit after Morgan Stanley and Cliffwater LLC capped withdrawals from some funds after a surge in redemptions, further dampening sentiment.

“Investors at large are growing increasingly concerned when it comes to the inflation backdrop given the surge in energy prices,” said Michael Brown, a senior research strategist at Pepperstone. “Economies that are significant energy importers are likely to experience a more significant inflationary surge, and you’d expect the government bonds of those nations to underperform,” he said, pointing to U.K. and European debt.

That dynamic is already visible in Europe, where Germany’s 10-year bund yield climbed Thursday to its highest since 2023 amid fears about the impact from the

Middle Eastern

conflict’s economic fallout.

Attention is also turning to central banks. While the

United States Federal Reserve

is widely expected to hold rates steady next week, any sustained pickup in price pressures may make it harder to justify resuming cuts in coming months, even as the labour market softens.

“A higher inflation path will make it harder for the Fed to start cutting soon,”

Goldman Sachs Group Inc.

economists Manuel Abecasis and David Mericle wrote in a note. The economists this week pushed back their forecast for the authority to cut rates again to September from June.

Meanwhile, global corporate bond spreads are hovering near their highest since June.

The U.S. investment-grade dollar bond index fell into the red for year-to-date returns on Wednesday after software company Salesforce Inc. drew lukewarm appetite for a US$25 billion bond sale amid broader worries about software companies’ exposure to AI.

Amazon.com Inc.

sold US$37 billion of bonds on Tuesday, the largest single-day issuance on record in the market.

Indexes separately tracking government and investment-grade corporate bonds globally are now also losing money in 2026, the data show.

The probability of default for corporates in Europe will rise “significantly but unevenly across sectors” if oil prices climb toward US$130 a barrel, according to Scope Ratings analysts including Karl Pettersen, co-head of corporate ratings. Should prices stabilize around US$90 to US$100, the default probability will “remain modest,” according to the firm’s stress test.

The cost of protection against investment-grade defaults in Europe approached the highest level since May on Thursday. Investor positioning on European high-grade credit-default swaps flipped bearish for the first time in years last week.

Still, not all investors are bracing for a prolonged downturn. Trump’s efforts to keep oil prices in check, along with lessons from past oil crises, are making some investors more sanguine about the longer-term outlook for bonds.

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“History shows these oil spikes from war typically don’t last in the long term,” said Raymond Lee, chief investment officer at Torica Capital in Sydney. While yields may remain under pressure in the short term, he added, “once the conflict looks to be ending and oil prices are less volatile, we may add duration.”

With assistance from Tasos Vossos

Bloomberg.com