Bond markets retreat

Key takeaways

While bond markets struggled in the face of rising inflation and political risks, global stock markets made gains last week, despite the increasingly fragile truce in the Middle East.

Government bonds hit by inflation fears
Global bond markets recoiled last week amid sharply rising oil prices and signs that the closure of the Strait of Hormuz is pushing US inflation higher. Tuesday’s Consumer Price Index (CPI) reading showed annual US inflation ticked up to 3.8% in April, a three-year high which now puts it ahead of wage growth. Wednesday’s annual Producer Price Index (PPI) reading, meanwhile, came in at a blistering 6%.

Yields on 30-year US government bonds, or Treasuries, hit 5% – their highest since 2007 (meaning their prices were at record lows). Meanwhile, 30-year UK government bond (gilt) yields hit their highest since 1998. Although Kevin Warsh was narrowly confirmed by the US Senate as the next Federal Reserve chair, the political turmoil resulting from the UK’s latest leadership crisis meant gilts suffered far more than Treasuries last week.

Mr Trump goes to China
Amid a crumbling ceasefire in the Middle East, President Trump and an entourage of top leadership from the biggest US tech and finance firms, including Apple, Boeing, Citi, GE Aerospace, Meta, Nvidia, Qualcomm, Tesla, and Visa, made a flying two-day visit to Beijing to meet with China’s President Xi Jinping.

A trip light on progress confirmed that a ‘mega order’ for Boeing aircraft had failed to materialise, alongside vague commitments for greater purchases of US farm products, oil and gas, and thinly veiled Chinese sabre-rattling over Taiwan, amid a $14bn US arms sale to the latter. By Friday, the absence of any appreciably progress on key issues such as reopening the Strait of Hormuz, or Chinese curbs on access to ‘rare earth’ metals, or US chip controls, contributed to the sell-off in US stock markets.

Elon Musk invents ‘out of this world’ pay structure
Next month will see Elon Musk list the world’s most valuable private company, SpaceX, in what’s expected to be the biggest ever initial public offering (IPO). If it hits its $75bn target, it will value the rocket maker at c$1.75trn.

Mr Musk has already agreed a Tesla pay deal worth up to $1trn over the next decade, if he hits market capitalisation and earnings targets, and ships a million ‘bots’, including Tesla’s humanoid assistants. Meanwhile, his SpaceX package will vest him potentially trillions in shares – if the company hits a $7.5trn valuation, and establishes a million-strong human colony on Mars!

US public pension funds described Mr Musk’s pay packet, and his control of SpaceX, as “the most management-favourable governance structure ever brought to the US public market”.

Market moves

• Global stock markets made headway thanks chiefly to US markets hitting new record highs.
• Shares in Europe made modest gains, UK shares were flat while emerging markets declined slightly.
• UK and US government bonds struggled, leaving both in negative territory for 2026. Gold fell 2.5%.

What to look out for this week

• This week brings preliminary Purchasing Managers’ Index (PMI) numbers for a range of major economies.

• The US publishes housing market data on Monday and initial jobless claims and housing starts on Thursday.

• The UK promises earnings and unemployment data on Tuesday followed by Retail Price Index (RPI) and Producer Price Inflation (PPI) data on Wednesday.

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