On Monday, oil prices surged and global bonds experienced fluctuations as escalating tensions in the Middle East sparked inflation concerns and expectations of interest rate hikes by central banks. Brent crude, the international oil benchmark, saw an increase following an assault on a nuclear facility in the United Arab Emirates. This incident occurred amidst stalled peace negotiations between the United States and Iran, now in their sixth week of ceasefire. Former President Donald Trump commented on social media, urging Iran to act swiftly with the warning: “For Iran, the Clock is Ticking, and they better get moving, FAST, or there won’t be anything left of them. TIME IS OF THE ESSENCE!”
Brent crude’s price rose by up to 1.77%, reaching $111.16 per barrel, marking its peak in nearly two weeks during early trading on Monday. However, it later settled at $110 a barrel after Iran announced it had responded to a new U.S. proposal aimed at resolving the conflict. Iran’s foreign ministry spokesperson, Esmaeil Baqaei, noted that discussions were ongoing through a Pakistani mediator, though he did not elaborate on the details. Meanwhile, global bonds experienced volatility, with the benchmark 10-year U.S. Treasury yield climbing to 4.631%, its highest since February 2025, before slightly retreating to 4.599%.
In the United Kingdom, the 10-year gilt yield reached 5.19%, surpassing the 18-year high it achieved on Friday, but later eased to 5.15%. This volatility in UK government bonds is partly driven by political uncertainty, as traders speculate about a potential leadership challenge to Prime Minister Keir Starmer from Manchester Mayor Andy Burnham later in the year. This bond market turbulence coincided with a gathering of G7 finance ministers, including UK Chancellor Rachel Reeves, in Paris to deliberate on the economic ramifications of the Middle Eastern conflict.
Concerns among bond investors about a potential “shift to the left” in the UK were highlighted by Mohit Kumar, chief economist at the brokerage Jefferies. He pointed out that the UK’s fiscal situation was already strained, with the government unable to implement spending cuts. A further shift to the left could mean increased public spending, despite limited fiscal space. With tax levels already high, additional tax hikes might not increase revenue. Kathleen Brooks, research director at the brokerage XTB, suggested that UK bond yields might recover if markets perceive Burnham as restrained in his spending approach.
In Japan, bond yields rose as well, with the 10-year yield reaching an almost 30-year high of 2.8% on Monday. This increase came as the government prepared to issue new debt to mitigate the economic impact of the Middle Eastern conflict. European stock markets opened lower, with the Stoxx Europe 600 index, tracking major companies on the continent, falling by 0.7%. The UK’s FTSE 100 index remained largely unchanged. In Asia, Japan’s Nikkei dipped by approximately 1%, Hong Kong’s Hang Seng index lost 1%, while Shanghai’s SSE Composite edged down 0.1%. South Korea’s Kospi, however, closed 0.3% higher.