Oil prices experienced an uptick, and global bonds faced volatility on Monday as increased tensions in the Middle East stoked inflation concerns and speculation about central banks raising interest rates. Brent crude, a critical international oil benchmark, surged in response to an attack on a nuclear facility in the United Arab Emirates, coinciding with stalled peace talks between the US and Iran. Former President Donald Trump added to the tension with a social media post warning Iran that “time is of the essence” to progress in negotiations.
The price of Brent crude climbed as much as 1.77% to reach $111.16 per barrel, marking its peak in nearly two weeks before settling back to $110 per barrel after Iran indicated it had answered a new US proposal to resolve the conflict. Iranian foreign ministry spokesperson Esmaeil Baqaei confirmed that discussions were “continuing through the Pakistani mediator,” though details were sparse.
Global bond markets saw considerable fluctuations, with the benchmark 10-year US Treasury yield reaching 4.631%, its highest point since February 2025, before easing to 4.599%. In the UK, the 10-year gilt yield rose to 5.19%, surpassing an 18-year high, before retreating to 5.15%. This instability in UK government bonds is partly attributed to political uncertainties, as traders speculate about a potential leadership challenge to Prime Minister Keir Starmer by Manchester Mayor Andy Burnham later this year. The UK chancellor, Rachel Reeves, joined other G7 finance ministers in Paris on Monday to deliberate the economic repercussions of the Middle Eastern conflict.
Market analysts are expressing concerns over the UK’s fiscal outlook. Mohit Kumar, chief economist at Jefferies, noted that bond investors are wary of a “shift to the left” in the UK, which could lead to increased public spending despite limited fiscal capacity. He highlighted that tax hikes have already reached a point where they might not yield additional revenue. Conversely, Kathleen Brooks, research director at XTB, suggested that UK bond yields might recover if markets perceive a moderation in Burnham’s spending approach. She noted that the main challenge for UK markets would be whether the 10-year yield could drop below the 5% threshold and if the 30-year yield would retract from its 1998-level highs.
Meanwhile, in Japan, bond yields surged with the 10-year yield hitting nearly a 30-year high at 2.8% on Monday, as the government prepared to issue new debt to mitigate the economic impact of the Middle Eastern war. European stock markets opened lower, with the Stoxx Europe 600 index slipping by 0.7%, while the UK’s FTSE 100 remained relatively stable. In Asia, Japan’s Nikkei fell by about 1%, Hong Kong’s Hang Seng index dropped by 1%, and Shanghai’s SSE Composite edged down by 0.1%, although South Korea’s Kospi saw a modest increase of 0.3% at closing.