Bonds, stocks and precious metals slump as inflation fears mount, silver falls 7%

Government bonds, precious metals and international stocks sold off on Friday, as inflation fears mounted and U.S. President Donald Trump concluded his high stakes visit to China.

By 10:56 a.m. in London, yields on a swathe of global sovereign bonds had jumped. The yield on the U.S. 10-year Treasury was almost 9 basis points higher at 4.544%, its highest level in almost a year.

The U.K. — which has seen yields on its government-issued debt surge in recent days amid mounting political uncertainty — saw its benchmark 10-year gilt yield 15 basis points higher.

Japan, which is particularly sensitive to inflationary pressure linked to the Iran war, given its status as a major energy importer, also saw bond yields rise drastically. Friday saw the yield on Japan's 2-year bond rise by as much as 19 basis points, before cooling a little to trade 12 basis points higher.

Bond yields and prices move in opposite directions.

At the same time, stocks listed in Asia and Europe traded sharply lower, and U.S. equity futures pointed to a negative open on Wall Street. It comes after the Dow Jones Industrial Average reclaimed the 50,000 threshold on Thursday and the S&P 500 closed above 7,500 for the first time.

Gold and silver markets also came under pressure on Friday.

Spot gold fell 2% to $4,552.59 an ounce, while spot silver was down 6.5% to $78.08 per ounce. Front-month gold and silver futures fell 2.6% and 7.7%, respectively, while U.S.-listed gold and silver miners and ETFs sold off in pre-market trading.

By 5:05 a.m. ET, the ProShares Ultra Silver ETF was down more than 12%, while the iShares Silver Trust fund was 6% lower. Silvercorp Metals lost 6.9% ahead of the regular trading session, Teck Resources fell by 5.9% and Endeavour Silver was 4.9% lower.

The U.S. dollar index rose by around 0.4%, as the greenback got a boost from a resurgence in inflation concerns, and oil prices jumped after Trump said China had agreed to buy American oil.

Various developments are weighing on sentiment, investors and analysts watchers told CNBC on Friday.

Renewed concerns about an energy shock translating into more hawkish monetary policy is hitting Treasurys, amid fears the Federal Reserve may be behind the curve on inflation under incoming chair Kevin Warsh. There is also continued uncertainty around the U.S.-Iran war, and the lack of a meaningful announcement resulting from the three-day Trump-Xi summit — despite an apparent thawing of Sino-U.S. relations. Political upheaval in the U.K. is also playing a part, analysts said.

Lauren Hyslop, investment manager at Mattioli Woods, said global markets were confronting some "uncomfortable" truths, reflected in pricing on Friday.

"Rising bond yields are once again imposing their will on markets, tightening financial conditions and sapping risk appetite across asset classes," she told CNBC in an email on Friday morning. "Investors are confronting the uncomfortable reality of 'higher for longer' rates in the U.S., as stubborn inflation and surprisingly resilient growth push back any meaningful pivot to easing."

Hyslop added that a stronger dollar and "dwindling hopes of liquidity support" were compounding the pressure on both equities and precious metals.

"Layer in geopolitical noise and mounting fiscal anxieties, not least in the U.S. itself, and a picture emerges of markets that may have been far too sanguine about the road ahead," she said.

Evangelia Gkeka, principal of fund research at Morningstar, said bonds were selling off on Friday as investors seek higher returns to counterbalance the impact of higher inflation expectations.

"If you look at precious metals, recent dollar strength (they are priced in dollars and strength in the currency makes them more expensive for international investors) and expectations of higher rates have probably contributed to the move," she said via email.

"Investors looking for liquidity during the current period of geopolitical uncertainty and selling their most liquid holdings, such as precious metals or equities, could be another factor. We might also be seeing some profit taking after a prolonged period of strong performance."

Tom Ross, head of high yield at Janus Henderson Investors, told CNBC on Friday that the strong repricing of global bond yields was being driven by a combination of idiosyncratic factors and shifting macro expectations.

"There was no meaningful agreement from the Trump-Xi summit after two days of talks which weighed on sentiment," he said.

Ross also pointed to U.K. Prime Minister Keir Starmer fading grip on power, amid pressure to step down as leaders. U.K. gilts have sold off sharply as bond investors fear his replacement will loosen the fiscal purse strings.

Andy Burnham, widely considered a frontrunner to replace Starmer, is reported to be looking for a seat in parliament so he can trigger a vote to challenge the incumbent leader's premiership.

"More broadly, investors are repricing oil higher for longer and factoring in a more persistent inflation backdrop," Ross told CNBC on Friday. "In Japan, stronger-than-expected wholesale inflation reinforces this narrative, with producer prices rising 4.9% year-on-year in April, well above expectations."

Markets are also shifting their policy expectations for the Fed, he noted. According to the CME's FedWatch tool, money markets are currently pricing in a near-zero chance of any rate cuts this year, and a 50% chance of a hike in December.

"The other, less talked about factor we believe the market is starting to get its head around is the impact of AI," Ross added. "Whilst we continue to believe the longer-term impact of AI will be deflationary, the short term impact of the huge wave of data center rollout is inflationary."

Global equity markets have seen sporadic periods of bearish sentiment driven by AI concerns. There are fears linked to unprecedented levels of capital expenditure and under-delivery with the potential to create a bubble reminiscent of the dotcom era.

But Ross noted that "enormous demand" for semiconductors, analogue devices and cooling mechanisms needed in data centers should be on investors' radar.

"These data centers are sucking in demand for such a broad range of components pushing up prices and causing companies like Texas Instruments to advise their customers to bring forward orders, which is unprecedented," he said.

"Add this onto higher fuel and commodity costs due to the prolonged closure of the Strait of Hormuz and inflation is fast becoming the key risk to watch."