Asian and European shares fell, US and European bond yields hit multi-year highs, and oil prices climbed as investors braced for tighter monetary policy to combat troubling levels of inflation.
US Treasury yields hit fresh two-year highs and Germany's 10-year yield rose above 0 per cent for the first time since May 2019, as investors hike bets that policymakers will curb years of stimulus in order to fight rising asset prices.
The benchmark German bond's shift to positive yields marks a turning point for euro area debt, reflecting record-high inflation that is being exacerbated by supply chain disruption.
"This inflationary episode is unusually challenging in that it is driven by both strong demand and shortages of supply," said Guy Foster, chief strategist at wealth manager Brewin Dolphin.
Oil prices hit their highest since 2014 amid an outage on a pipeline from Iraq to Turkey and global political tensions, stoking fears of inflation becoming more persistent and propping up the dollar, which hovered near one-week highs.
"There is a limited amount that domestic interest rates can do to ease global markets for gas, oil and semiconductors but generally tighter monetary policy around the world would slow the economy and relieve some of this pressure," Foster said.
An index of Europe's 600 biggest stocks fell 0.1 per cent, following earlier losses in MSCI's broadest index of Asia-Pacific shares outside Japan as tech stocks in particular suffered.
Australia shed 1.0 per cent, while Japan's Nikkei hit a three-month low as worries over new curbs on businesses to halt a record surge in coronavirus cases curbed risk appetite.
Shares in Sony Group slumped to their lowest level since late October, losing more than 10 per cent after gaming rival Microsoft said it will buy developer Activision Blizzard.
US stock markets looked set to follow the sombre tone, with S&P 500 futures down 0.13 per cent.
Two-year Treasury yields, which track short-term interest rate expectations, were last at 1.063 per cent, after hitting as high as 1.075 per cent, the highest since February 2020, as traders positioned for a more hawkish Federal Reserve ahead of the US central bank's policy meeting next week.
The prospect of higher US rates also played out elsewhere in fixed income markets, with longer-dated US Treasury yields hitting fresh two-year highs.
Ten-year yields were up about 3 basis points at 1.8916 per cent, while five-year yields were at 1.682 per cent, also holding near new two-year highs recorded early in the session.
The dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was down at 95.654.
Meanwhile sterling held steady at $1.3609 despite data showing inflation had hit a 30-year high, and the growing prospects of a leadership challenge against Prime Minister Boris Johnson.
Oil prices rose for a fourth day as an outage on a pipeline from Iraq to Turkey added to worries about an already tight supply outlook amid geopolitical troubles involving Russia and the United Arab Emirates.
US crude jumped 0.48 per cent to $85.91 a barrel. Brent crude rose 0.33 per cent to $87.76 per barrel.
Gold was slightly lower. Spot gold traded at $1,811.35 per ounce.
Australian Associated Press
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