Analyst warns of 'late-stage bubble' as rates and oil prices surge

Topic: Inflation Attacks in the Middle East this week have sent crude oil futures surging to a four-month high. (Reuters: Raheb Homavand) The US benchmark West Texas Intermediate (WTI) crude price is also around multi-month highs at $US103.57 a barrel. "With events spiralling and Iran showing it is willing to stretch this conflict as wide and as long as it can, it is becoming increasingly likely that WTI crude will retest the $US119.48 high from early March," IG analyst Tony Sycamore told Reuters. Investors are bracing for more aggressive interest rate hikes worldwide as central banks try to manage another wave of inflation. The European Central Bank (ECB) lifted rates by 25 basis points overnight, to 2.5 per cent, and revised its inflation forecasts higher for 2027 and 2028. The Bank of Japan (BOJ) is expected to lift rates by 25 basis points next week, which would result in its policy rate rising to 1.25 per cent, its highest level in 31 years. There are growing market fears the US Federal Reserve will also lift interest rates when it meets next week, ignoring US President Donald Trump's demands for lower rates. In Australia, the RBA's Monetary Policy Board will meet on September 28 and 29, and market pricing suggests there is a 70 per cent chance that the RBA will lift rates when the meeting concludes. Analysts say recent data in Australia have shown that inflation and economic activity are both running hotter than expected in the economic cycle, and senior RBA officials have acknowledged how angry people are about inflation. India's 10-year government bond yields hit 7.0038% on Friday in response to rising oil prices. Bond sell-off rattles global markets The threat that higher oil prices pose to inflation over the short and medium term, along with longer-term concerns about government finances across many major Western economies, has resulted in bond prices falling and the yield, or interest rate, on bonds surging to multi-year highs this month. The yield on US 10-year Treasuries jumped to 4.97 per cent during early Asian trade on Friday, the highest level in almost three years. Reuters reports that 10-year yields broke above 5 per cent in October 2023 for the first time since 2007, reaching 5.021 per cent, but only for one day. Some analysts have expressed concerns that a sustained rise above 5 per cent for US 10-year Treasuries, the world's benchmark "risk-free" financial instrument, could wreak havoc on asset markets and the global economy. "Rising interest rates have a habit of ending booms.