On Monday, oil prices surged, and global bond markets experienced fluctuations as renewed tensions in the Middle East stirred concerns about inflation and prompted speculation that central banks might hike interest rates. This shift in the financial landscape comes as peace negotiations between the United States and Iran have reached an impasse during the sixth week of an attempted ceasefire. Former President Donald Trump added fuel to the fire with a social media post warning Iran to act quickly, implying severe consequences if they did not.
The international oil benchmark, Brent crude, climbed by as much as 1.77% to $111.16 per barrel, marking its highest point in nearly two weeks. The spike was triggered by an attack on a nuclear power plant in the United Arab Emirates. However, prices later moderated to $110 per barrel after Iran announced it had responded to a new proposal from the U.S. aimed at resolving the conflict. Esmaeil Baqaei, a spokesperson for Iran’s foreign ministry, confirmed that discussions were ongoing through a mediator from Pakistan, though he did not disclose specific details.
Meanwhile, global bond markets were erratic, with the benchmark 10-year U.S. Treasury yield briefly reaching 4.631%, the highest since February 2025, before settling back to 4.599%. In the U.K., the 10-year gilt yield hit a peak of 5.19%, surpassing an 18-year high recorded on Friday, before declining to 5.15%. The volatility in U.K. government bonds is partly attributed to political uncertainty, as market participants anticipate a potential leadership challenge to Prime Minister Keir Starmer from Manchester Mayor Andy Burnham later in the year.
The bond market’s turbulence coincided with a meeting of G7 finance ministers, including U.K. Chancellor Rachel Reeves, in Paris on Monday to address the economic repercussions of the Middle Eastern conflict. Mohit Kumar, chief economist at Jefferies, noted investors’ concerns about a possible “shift to the left” in the U.K. political landscape, which could lead to increased public spending despite limited fiscal capacity. He emphasized that further tax hikes might be counterproductive.
In Japan, bond yields rose, with the 10-year yield reaching nearly a three-decade high at 2.8% on Monday, as the government prepared to issue new debt to mitigate the economic impact of the Middle Eastern turmoil. European stock markets opened lower, with the Stoxx Europe 600 index down 0.7%, while the FTSE 100 in the U.K. remained relatively stable. Asian markets also faced declines, with Japan’s Nikkei and Hong Kong’s Hang Seng index both dropping by about 1%, whereas South Korea’s Kospi index saw a slight increase of 0.3%.