On Monday, oil prices experienced an upswing while global bonds saw fluctuations, spurred by renewed tensions in the Middle East that fueled inflation concerns and speculation about potential interest rate hikes by central banks. Brent crude, the international oil benchmark, surged following an attack on a nuclear power plant in the United Arab Emirates. The rise in oil prices coincided with stalled peace negotiations between the US and Iran, now in their sixth week of ceasefire. Former President Donald Trump added to the tension with a social media post directed at Iran, 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!”.
Early on Monday, Brent crude reached its highest level in nearly two weeks, climbing by 1.77% to $111.16 a barrel before slightly retreating to $110 following Iran’s response to a new US proposal aimed at resolving the conflict. Esmaeil Baqaei, Iran’s foreign ministry spokesperson, confirmed ongoing exchanges through a Pakistani mediator, though he did not provide further details. Meanwhile, global bond markets exhibited volatility, with the US 10-year Treasury yield hitting a peak of 4.631%, the highest since February 2025, before easing back to 4.599%. Similarly, in the UK, the 10-year gilt yield surpassed an 18-year high, reaching 5.19% before settling at 5.15%.
The instability in UK government bonds is partly attributed to political uncertainty, as speculation mounts that Prime Minister Keir Starmer could face a leadership challenge from Manchester Mayor Andy Burnham later in the year. This bond market turbulence coincided with a meeting of G7 finance ministers, including UK Chancellor Rachel Reeves, in Paris to deliberate on the economic repercussions of the Middle Eastern conflict. Mohit Kumar, chief economist at Jefferies, expressed concerns about a potential “shift to the left” in the UK, suggesting that increased public spending could strain the country’s already precarious fiscal situation, where tax increases have reached a point of diminishing returns.
Despite the challenges, Kathleen Brooks, research director at XTB, indicated that UK bond yields might recover during the week. She noted that if the bond markets perceive Burnham as tempering his high-spending tendencies, UK yields could potentially decline. The critical test for UK markets, she suggested, would be whether the 10-year yield could drop below 5% and if the 30-year yield would move away from historically high levels reminiscent of 1998.
Elsewhere, Japan’s bond yields rose, with the 10-year yield hitting a nearly 30-year high at 2.8% as the government prepared to issue new debt to mitigate the economic impact of the Middle Eastern conflict. Stock markets across Europe opened lower, with the Stoxx Europe 600 declining by 0.7%, and the UK’s FTSE 100 remaining largely unchanged. In Asia, Japan’s Nikkei and Hong Kong’s Hang Seng index both fell by about 1%, while Shanghai’s SSE Composite saw a slight decrease of 0.1%. South Korea’s Kospi bucked the trend, closing 0.3% higher.