Rising tensions in the Middle East pushed oil prices higher and caused fluctuations in global bond markets on Monday, as concerns over inflation and potential interest rate hikes by central banks grew. Brent crude, the global oil benchmark, surged following an assault on a nuclear power facility in the United Arab Emirates. The increase in oil prices coincided with stalled peace negotiations between the US and Iran in the sixth week of their ceasefire. Former US President Donald Trump heightened tensions with a social media post warning Iran that “the Clock is Ticking” and urging swift action.
Brent crude climbed by up to 1.77% to reach $111.16 per barrel, marking its peak in nearly two weeks. It later settled at $110 per barrel after Iran acknowledged receiving a new US proposal to end the conflict. Iranian Foreign Ministry spokesperson Esmaeil Baqaei confirmed that discussions were ongoing through a Pakistani intermediary, though details remained scarce. The uncertainty surrounding these negotiations and the geopolitical situation contributed to the volatility in the bond markets.
US Treasury yields saw significant movement, with the benchmark 10-year yield hitting 4.631%—its highest point since February 2025—before easing to 4.599%. Meanwhile, in the UK, the 10-year gilt yield reached 5.19%, surpassing an 18-year high recorded on Friday, before settling at 5.15%. The instability in UK government bonds is partly attributed to political uncertainties, with speculation that Prime Minister Keir Starmer might face a leadership challenge from Manchester Mayor Andy Burnham. As these developments unfolded, UK Chancellor Rachel Reeves and other G7 finance ministers convened in Paris to address the economic repercussions of the Middle Eastern conflict.
Analysts like Mohit Kumar from Jefferies expressed concern that a political shift to the left in the UK could pose fiscal challenges, given the government’s already strained financial situation and limited room for tax increases. Kathleen Brooks from XTB suggested that UK bond yields might recover if investors believe Burnham would moderate his spending approach. The market’s key test will be whether the 10-year yield can dip below 5%.
Amid these financial market fluctuations, Japan’s bond yields also rose, with the 10-year yield reaching a near 30-year high of 2.8% as the government prepared to issue new debt to mitigate the economic impact of the Middle Eastern conflict. In Europe, stock markets opened lower, with the Stoxx Europe 600 index dropping 0.7%, while the UK’s FTSE 100 remained steady. Asian markets reflected a similar trend, with Japan’s Nikkei and Hong Kong’s Hang Seng index each falling by about 1%, while Shanghai’s SSE Composite slipped 0.1%. South Korea’s Kospi, however, closed 0.3% higher.