Global bond yields climbed back to the highest level in almost two decades on Tuesday, as rising oil prices stoked inflation concerns and investors ramped up expectations for interest-rate hikes. 

The move started on Friday after Federal Reserve Chairman Kevin Warsh doubled down on his vow to finally tame inflation, and has extended this week as energy prices rose on renewed conflicts in the Middle East.

The rate on 10-year Japanese government notes touched 3% for the first time since 1996, UK 30-year yields reached the highest since 1998 and the 10-year Treasury rate hit levels last seen January last year. The yield on a Bloomberg gauge of global sovereign bonds rose for a fourth straight session on Monday, climbing to 3.72%, the highest since mid-2008. 

READ MORE: How Warsh's hawkish comments will impact mortgage rates

"Markets are pricing in a higher path for short rates in the US, but also globally," Idanna Appio, a portfolio manager and senior research analyst at First Eagle Investments, said on Bloomberg TV. "Investors are beginning to reassess what neutral policy rates look like and there has been a gradual increase in those."

Global bonds have been under pressure for months, with worries over elevated government spending in markets like Japan, the UK and the US prompting investors to seek higher compensation to own longer-maturity debt. At the same time, a surge in borrowing by US technology firms to fund artificial intelligence is potentially crowding out demand for sovereign bonds.

Meanwhile, fresh hostilities between the US and Iran have raised concerns about prolonged disruptions to energy flows through the Strait of Hormuz, sending oil prices higher. Several current and former officials have said they expect the Middle East conflict to drag on for months.

"The direction of travel is going to be higher yields from here," said Laura Cooper, global investment strategist at Nuveen. "Term premium likely has to be higher to compensate for this confluence of risks." 

Traders are currently pricing an almost 70% chance that the Federal Reserve hikes rates by a quarter-point at its meeting this month and an increase from the European Central Bank is fully priced in for next week. Meanwhile, they're all but certain the Bank of Japan will hike later this month.

On Tuesday, Federal Reserve Governor Michael Barr said the central bank should be prepared to raise interest rates if inflation fails to subside, warning price pressures are at risk of becoming entrenched after being above target for more than five years.

Against this backdrop, the Bloomberg gauge of global debt has slipped 0.9% so far this year, following a 6.8% gain in 2025. An auction of 10-year Japanese bonds on Tuesday saw demand in line with the 12-month average, while in Australia, the yield on similar-maturity debt surged to levels last seen in 2011.

Economists at Barclays Plc and Societe Generale SA changed their Federal Reserve forecasts following Warsh's speech on Friday, predicting rate hikes this year that they previously had not anticipated.

The bond selloff poses a fresh challenge for Treasury Secretary Scott Bessent, who last month unleashed more measures to keep yields contained, as well as for President Donald Trump, with higher borrowing costs threatening to weigh on the economy heading into the November midterms.

The yield on 30-year US bonds is almost back to the levels seen before Bessent jolted markets last month with a decision to at least double the size of the Treasury department's bond buybacks. Treasuries face a welter of challenges as September begins, including upcoming data and a renewed wave of corporate issuance seen running at $215 billion in corporate debt issuance this month. That follows record levels in August. 

"Long-end rates are still vulnerable to upward pressure based on upside inflation risks, geopolitical uncertainty and record corporate borrowing alongside heavy government bond issuance," said Nancy Vanden Houton, lead economist at Oxford Economics. She said, "increased Treasury buybacks of longer-term debt will only offset those factors at the margin."

Surging yields also threaten to dent the appeal of equities, putting a global, artificial intelligence-led rally at risk. The MSCI All Country World Index is down about 1% since reaching a record high mid-August.

Pressure on bonds is unlikely to ease, if seasonality is any guide. September and October have been the worst months for the global bond index over the last decade, with the gauge losing more than 1% on average in each of the two months during the period, according to data compiled by Bloomberg.

"The bond market is not imploding, but it's sending a very clear memo that stickier inflation means higher for longer policy rates as the absolute minimum," said Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities in Singapore. "I expect the market to continue selling off, fiscal deterioration and higher term premium are likely to remain front and center."