Global Bonds Sell Off and Oil Prices Rise as Markets React to Geopolitical Developments

Government bonds around the world sold off sharply on Friday as the price of oil jumped. Both moves were driven by developments tied to the Iran war, politics and trade. The yield on the 30-year U.S. Treasury bond rose above 5.12 percent, its highest level in nearly a year.

If it closes above that level it would mark the highest close since 2007. On Wednesday the Treasury sold 30-year bonds above 5 percent for the first time since 2007. The 10-year Treasury note yield also rose to nearly 4.56 percent, its highest level since mid-May of last year.

U.S. crude oil rose more than 4 percent to above $105 a barrel, bringing its gain for the week to more than 9 percent. International Brent crude increased nearly 3.5 percent to over $109 a barrel and has gained 7 percent this week. The moves gained momentum as discussions continued over a summit with Chinese officials in Beijing that has produced few major trade agreements.

Stocks dropped in early trading with the S&P 500 sliding 1 percent, the Nasdaq Composite falling 1.3 percent and the Dow Jones Industrial Average declining 430 points. The rise in oil threatens to push retail gas prices higher while higher bond yields could lead to increased consumer lending rates.

As of Friday morning the average price of unleaded gas remained above $4.50 a gallon, up 51 percent since the Iran war began on Feb. 28. The closure of the Strait of Hormuz has halted vessel traffic that previously carried more than 20 percent of the world's daily energy supply.

Oil prices have surged more than 80 percent this year. The Consumer Price Index for April reached 3.8 percent, its highest level in three years, while an index measuring wholesale prices hit 6 percent last month.

Discussions during the summit with Chinese officials produced limited details on new business or trade deals. Officials said the delegations talked about creating a board of trade but offered few specifics. The status of an existing U.S. trade truce with China that eased export controls and lowered tariffs remains unclear and the truce expires in November.

U.S. officials have given conflicting answers on whether China will play a larger role in reopening the Strait of Hormuz. The president said he did not ask China's leader to use leverage over Iran to reopen the waterway. Officials also provided no details on any potential agreement for China to purchase Boeing planes.

Europe sold off with the Stoxx 600 falling 1.5 percent while benchmark indexes in Germany and Italy declined more than 2 percent. In Japan the 10-year government bond yield rose to its highest level since 1999 and German bund yields reached their highest since 2011.

European natural gas futures rose more than 4 percent early Friday after climbing more than 80 percent so far this year. Anxiety over inflation has increased in European and Asian economies as energy prices continue to climb.