On Monday, crude oil prices experienced an uptick and global bond markets showed volatility as tensions escalated in the Middle East, sparking inflation concerns and speculation about potential interest rate hikes by central banks. Brent crude, the global oil benchmark, saw a rise following an attack on a nuclear facility in the United Arab Emirates. This development coincided with a deadlock in peace negotiations between the United States and Iran, now entering its sixth week of ceasefire. Former President Donald Trump added to the tensions with a social media post warning Iran that “time is of the essence” to act swiftly or face severe consequences.
Early on Monday, Brent crude’s price surged by as much as 1.77% to reach $111.16 a barrel, marking its highest point in nearly two weeks. The price later settled at $110 a barrel after Iran announced it had responded to a new U.S. proposal to resolve the ongoing conflict. Iran’s foreign ministry spokesperson, Esmaeil Baqaei, indicated that discussions were continuing via a Pakistani mediator, although specifics were not disclosed.
In the bond markets, fluctuations were evident as the 10-year U.S. Treasury yield climbed to 4.631%, the highest since February 2025, before easing back to 4.599%. The UK saw its 10-year gilt yield peak at 5.19%, surpassing an 18-year high reached the previous Friday, and later retracting to 5.15%. The instability in UK government bonds is partly attributed to political uncertainty, with speculation that Prime Minister Keir Starmer might face a leadership challenge from Manchester Mayor Andy Burnham later in the year. Meanwhile, UK Chancellor Rachel Reeves joined other G7 finance ministers in Paris to deliberate on the economic ramifications of the Middle East conflict.
Mohit Kumar, chief economist at broker Jefferies, noted that bond investors are apprehensive about a potential “shift to the left” in the UK. He pointed out that the UK’s fiscal situation is already strained, with the government struggling to implement spending cuts. A leftward shift could lead to increased public spending despite limited fiscal room, and further tax hikes may prove counterproductive. Kathleen Brooks, research director at XTB, suggested that UK bond yields might see a recovery if markets perceive Burnham as reined in from high-spending tendencies.
In Japan, bond yields also rose, with the 10-year yield reaching nearly a 30-year high of 2.8% on Monday, as the government prepared to issue new debt to mitigate the economic impact of the Middle Eastern conflict. Stock markets in Europe opened lower, with the Stoxx Europe 600 index dropping 0.7%, while the UK’s FTSE 100 index remained largely unchanged. Asian markets mirrored this trend, with Japan’s Nikkei and Hong Kong’s Hang Seng index each declining by about 1%, although South Korea’s Kospi index closed 0.3% higher, and Shanghai’s SSE Composite saw a slight dip of 0.1%.
