On Monday, oil prices rose, and global bond markets experienced volatility, fueled by renewed tensions in the Middle East that heightened inflation concerns and speculation over potential interest rate hikes by central banks. Brent crude, the global oil benchmark, saw an increase following an attack on a nuclear power plant in the United Arab Emirates. This development coincided with stalled peace negotiations between the US and Iran, now in their sixth week of ceasefire. Former President Donald Trump took to social media to urge Iran to act swiftly, warning of severe consequences if they did not.
Early in the day, Brent crude prices climbed as much as 1.77% to $111.16 per barrel, marking the highest level in nearly two weeks. However, prices later eased to $110 per barrel after Iran announced it had responded to a new US proposal aimed at resolving the conflict. Esmaeil Baqaei, a spokesperson for Iran’s foreign ministry, mentioned that discussions were ongoing with the assistance of a Pakistani mediator but did not provide further details.
The bond market also saw significant fluctuations. The benchmark 10-year US Treasury yield reached 4.631%, the highest since February 2025, before slightly decreasing to 4.599%. In the UK, the 10-year gilt yield peaked at 5.19%, surpassing an 18-year high from the previous Friday, before falling back to 5.15%. Political uncertainty in the UK contributed to the bond market’s instability, with speculation that Prime Minister Keir Starmer might face a leadership challenge from Manchester Mayor Andy Burnham later in the year.
As the UK’s Chancellor Rachel Reeves and other G7 finance ministers convened in Paris to discuss the Middle East conflict’s economic effects, the bond market’s volatile behavior was apparent. Mohit Kumar, chief economist at Jefferies, highlighted investor concerns about a potential leftward shift in UK politics, which could lead to increased public spending despite limited fiscal capacity. Kathleen Brooks, research director at XTB, suggested that UK bond yields might recover if markets perceive Burnham’s fiscal approach as less aggressive.
Elsewhere, Japan experienced a rise in bond yields, with its 10-year yield reaching nearly a 30-year high of 2.8% 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 index dropping by 0.7%, while the UK’s FTSE 100 remained relatively stable. In Asia, Japan’s Nikkei index fell about 1%, Hong Kong’s Hang Seng index also decreased by 1%, and Shanghai’s SSE Composite dipped 0.1%. Meanwhile, South Korea’s Kospi index closed 0.3% higher.