Monetary policy repricing, impacting the frontend of govvie (across G10 and Asia) curves, has been particularly violent as investors parse the prospect of an extended Middle East war. Between conflicting statements from Trump and Iran, investors do not have confidence that the situation could be resolved anytime soon. Moreover, even if a ceasefire takes place immediately, the energy flow from the Gulf region to the rest of the world would likely be significantly below pre-war levels for some time. Elevated energy, insurance, shipping and related costs are likely to be here to stay. Inflation worries will not recede quickly. 
2Y yields have spiked across the globe as market participants price in rate hikes. Within the G10 space, the RBNZ, BOE and RBA are the three where adjustments are the largest. Each has its own idiosyncrasies to handle. The RBNZ is one of the most dovish central banks and hence any u-turn due to inflation would mean a longer path back to neutral. Meanwhile, investors think that the Australia economy would be insulated from the energy shock. Lastly, the UK’s reliance on energy imports (and lingering fiscal worries) have led to Gilt underperformance. US Treasuries are also facing significant stresses. 2Y and 5Y auctions over the past week have showed a marked deterioration in bidding metrics with dealers stuffed with bonds. Investors are clearly on the sidelines amidst uncertainties over how the Iranian conflict will play out. The market is now pricing a greater risk of Fed hikes relative to Fed cuts this year. 
In Asia, oil importers and high-beta government bonds (IndoGB, PH Govt, KTBs) were hit harder. Comparatively, CGB has been an oasis of calm, with 2Y yields down for the year. IndoGBs have been facing considerable challenges over the past few months as investors worry about fiscal laxness and more recently, potentially overly loose monetary policy relative to adverse global financial conditions. The authorities are taking steps to address these worries, and we note that liquidity has tightened meaningfully, pushing up very short-term rates in the process. For Philly, the worry lies with the large dependence on energy imports. For Korea, energy import dependency and the resultant spillover worries of high energy prices unto a less exuberant tech outlook may be weighing on assets. Amidst the storm, investors are reaffirming that CGBs yields will be well anchored. However, some steepening pressure is inevitable.
While we note that inflation is top of mind, we wonder if the hike pricing across some markets may be overdone. Elevated oil prices would at some point lead to slowdown worries. We note that the very recent rise in oil prices did not correspond to a further increase in 2Y yields. Instead, we note that frontend UST and Bund yields ended Friday lower. Investors are perhaps gaining interest int the frontend after the large repricing over the past month. 
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