US
July saw US Treasury yields rise sharply, as a renewed flare-up in the US-Iran conflict drove oil prices higher and reignited fears of persistent inflation. Tensions had eased towards a ceasefire in late June, but escalated abruptly in July as sustained US strikes and disruption to the Strait of Hormuz drove Brent crude from the low US$70s per barrel to over $100, before easing back to $90 by month-end. Softer-than-expected inflation early in the month provided some respite, with June CPI falling to 3.5% year-on-year on lower gas prices, briefly cooling expectations of a rate hike. But the subsequent oil price surge more than reversed this, lifting both market-based inflation expectations and the probability of near-term hikes. At its late-July meeting, the Federal Open Market Committee (FOMC) held rates at 3.50%-3.75%, but in a hawkish move, three members dissented in favour of a 25bps hike, and Chair Warsh declined to rule out further tightening. In addition, the FOMC meeting created some confusion for markets as Warsh leaned towards tightening policy through the Fed's balance sheet rather than hiking rates. The lack of clarity provided by Warsh over the path of policy from here and the Fed's hawkish stance triggered a sharp steepening of the curve, with the 30-year yield reaching a post-2007 high of 5.28%.
Europe
Sovereign bond yields across Europe also rose significantly in July, hitting fresh multi-year highs given the renewed escalation in the US-Iran conflict and the ensuing oil price spike and inflation fears. Europe's greater reliance on energy imports left it particularly vulnerable, with the 10-year German Bund yield reaching a post-2011 high of 3.21% and the 10-year French bond yield touching a post-2009 high before ending the month at 4.0%. A softer-than-expected June CPI print of 2.8% briefly eased expectations for rate hikes early in the month, but rising energy prices reversed this, prompting a hawkish repricing of the curve. The euro area proved resilient despite the energy shock, however, with a higher-than-expected Q2 GDP print of 0.4%. At its late-July meeting, the ECB held interest rates at 2.25% as expected, but signalled that further hikes remained likely; with a September hike now widely anticipated, European yields ended the month sharply higher across the curve.
UK
UK gilts rose across the curve over July, tracking the broader global sell-off in yields given the renewed escalation in the US-Iran conflict. This lifted gilt yields alongside their US and European counterparts, though the move was tempered somewhat by continued domestic disinflation, with June CPI easing to 2.6%. On the political front, Andy Burnham took office as Prime Minister mid-month, succeeding Sir Keir Starmer. At its late-July meeting, the Bank of England's Monetary Policy Committee held rates at 3.75%, with three of the nine members voting for a 25bps hike. However, the messaging proved more dovish, with Governor Bailey stating the Bank was not "edging towards a rate hike." A combination of falling oil prices toward month-end and dovish commentary led investors to lower expectations of near-term tightening, driving yields down from their mid-month peak, although they finished higher across the curve overall.
Japan
Japanese government bond yields rose over the month, although the rise was smaller in magnitude than in the US and Europe. At its late-July meeting, the Bank of Japan (BoJ) left its policy rate unchanged, following June's hike to 1.0% – the highest level since 1995 – and raised its FY2026 growth outlook to 0.6%. Board member Takata dissented from the decision, advocating a rate hike to 1.25%. Although the BoJ lowered its core inflation forecast to 2.5%, citing government subsidies and falling energy prices, the underlying inflation trend continued to rise: Tokyo core inflation rose to 1.9% in July, and headline inflation reached 2.0%. The standout development, however, was in the yen: after it weakened towards multi-decade lows, intervention by both Japanese and US authorities drove it 3.3% higher against the US dollar over the month.
| Indices (total return in local currency) |
| Bloomberg US Treasury Index | -1.1% |
| Bloomberg Global-Aggregate Total Return | -0.5% |
| Bloomberg EuroAgg Index | -1.5% |
Source: Bloomberg as at 31 July 2026.