By Reuters

(Reuters) - The world's biggest bond markets were set to end the week nursing heavy losses as concerns that war in the Middle ​East will renew upward pressure on inflation and force central banks ‌to start hiking interest rates soon.

Two-year government bonds, the most sensitive to shifting rate expectations, are feeling the most pain.

Yields on Britain's two-year bond or gilt have ​risen almost 40 basis points (bps) this week, set for the ​biggest one-week jump since August 2024.

On Friday, UK borrowing costs hit ⁠the highest level since October, while Germany two-year yields hit their highest ​in a year and were poised for the biggest weekly jump since ​April 2023.

Traders have ramped up bets that the European Central Bank may hike rates as early as May as energy costs have surged, potentially exacerbating price pressures on ​other goods and services from food to travel.

"However the conflict is ​resolved, it has already undermined our previous assumption that energy prices would remain low ‌and ⁠stable this year," said Berenberg chief economist Holger Schmieding.

Brent crude oil was headed for the sharpest weekly gain since Russia launched its full-scale invasion of Ukraine in February 2022.

Brent crude futures have surged roughly 17% this ​week.

The deepest pool ​of bonds, ⁠U.S. Treasuries, have seen two-year yields have jump 25 bps this week, set for the biggest weekly jump ​since last April's tariff turmoil. The moves have been ​global: Australia's ⁠borrowing costs have risen almost 20 bps.

Yields rise as prices of bonds fall.

Markets are sensitive following the supply shock that followed the COVID crisis ⁠in ​2020 and Russia's invasion of Ukraine in ​2022 that sent energy prices spiralling and prompted global central banks to respond with hefty ​rat increases.

Reporting by Dhara Ranasinghe and Alun John; Editing by Elisa Martinuzzi

Reuters report

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