On Monday, oil prices climbed while global bonds experienced volatility due to escalating tensions in the Middle East, reigniting concerns about inflation and speculation that central banks may need to hike interest rates. Brent crude, the global oil benchmark, increased following an attack on a nuclear facility in the United Arab Emirates. This development occurred amid stalled peace negotiations between the United States and Iran, with the ceasefire talks entering their sixth week. Former President Donald Trump remarked on social media, cautioning Iran of a ticking clock and urging swift action to avoid further repercussions.
Brent crude saw an increase of up to 1.77%, reaching $111.16 per barrel, marking its highest level in nearly two weeks on Monday. However, prices later eased to $110 a barrel after Iran acknowledged a new US proposal aimed at resolving the conflict. Iran’s foreign ministry spokesperson, Esmaeil Baqaei, indicated that discussions were ongoing with the assistance of a Pakistani mediator, though specifics were not disclosed.
In the bond markets, the benchmark 10-year US Treasury yield reached 4.631%, its highest point since February 2025, before slightly declining to 4.599%. The UK’s 10-year gilt yield also experienced fluctuations, reaching 5.19%, surpassing the 18-year high recorded on Friday, only to dip back to 5.15%. The UK’s bond market volatility is further influenced by political uncertainties, as there is anticipation that Prime Minister Keir Starmer could face a leadership challenge from Manchester Mayor Andy Burnham later in the year. Simultaneously, UK Chancellor Rachel Reeves and other G7 finance ministers convened in Paris to deliberate on the economic impacts of the Middle East conflict.
Jefferies’ chief economist Mohit Kumar expressed concerns among bond investors about a potential “shift to the left” in the UK political landscape. He pointed out that the UK’s fiscal situation is already precarious, with the government failing to implement spending cuts. A political shift to the left could result in increased public spending despite limited fiscal capacity. Kathleen Brooks of XTB suggested a potential recovery in UK bond yields, contingent upon markets perceiving Burnham as moving away from high spending practices, which could see the 10-year yield dipping below the 5% threshold.
Elsewhere, Japanese bond yields rose, 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 East conflict. European stock markets opened lower, with the Stoxx Europe 600 dropping 0.7%, while the UK’s FTSE 100 index remained relatively stable. In Asia, Japan’s Nikkei fell by approximately 1%, Hong Kong’s Hang Seng index decreased by 1%, Shanghai’s SSE Composite slipped 0.1%, and South Korea’s Kospi closed 0.3% higher.