On Monday, oil prices experienced an uptick while global bonds exhibited volatility, largely influenced by renewed tensions in the Middle East that have ignited inflation concerns and speculation about potential interest rate hikes by central banks. The international oil benchmark, Brent crude, saw an increase following an attack on a nuclear power facility in the United Arab Emirates. This development coincided with stalled peace negotiations between the United States and Iran, now in their sixth week of ceasefire. Former President Donald Trump added to the tension with a social media post urging Iran to act swiftly, warning of severe consequences if they did not.
Brent crude oil prices surged by up to 1.77%, reaching $111.16 per barrel, marking its peak in almost two weeks early on Monday. However, prices later settled at around $110 per barrel after Iran announced its response to a new U.S. proposal aimed at resolving the ongoing conflict. Esmaeil Baqaei, the spokesperson for Iran’s foreign ministry, mentioned that exchanges were ongoing through a Pakistani mediator, though no specific details were disclosed.
The bond market also experienced significant fluctuations, with the benchmark 10-year U.S. Treasury yield climbing to 4.631%, its highest point since February 2025, before retracting slightly to 4.599%. In the United Kingdom, the 10-year gilt yield peaked at 5.19%, surpassing an 18-year high reached on Friday, before decreasing to 5.15%. Political instability in the UK contributed to the bond market’s volatility, as traders speculated on a potential leadership challenge to Prime Minister Keir Starmer by Manchester Mayor Andy Burnham later in the year.
The swings in the bond market coincided with a meeting of the UK Chancellor, Rachel Reeves, and other G7 finance ministers in Paris on Monday, where they discussed the economic repercussions of the Middle Eastern conflict. According to Mohit Kumar, chief economist at Jefferies, bond investors are apprehensive about a potential “shift to the left” in the UK. He noted that the UK’s fiscal situation is already strained, and a move towards increased public spending could exacerbate it, given the limited fiscal space and the ineffectiveness of further tax increases to generate revenue.
Markets across the globe reflected the tensions, with European stock markets opening lower on Monday. The Stoxx Europe 600, an index tracking the continent’s largest companies, dropped by 0.7%, while the UK’s FTSE 100 remained relatively stable. In Asia, Japan’s Nikkei index declined by approximately 1%, and Hong Kong’s Hang Seng index also fell by 1%. Meanwhile, the Shanghai SSE Composite saw a slight dip of 0.1%, though South Korea’s Kospi index managed a 0.3% increase. In Japan, bond yields reached nearly a 30-year high of 2.8% as the government prepared to issue new debt to mitigate the economic impact of the Middle Eastern conflict.