The rise in oil prices and fluctuations in global bonds on Monday highlighted the impact of escalating tensions in the Middle East and concerns over inflation, as central banks face pressure to raise interest rates. Brent crude, the global oil benchmark, saw a significant increase following an attack on a nuclear facility in the United Arab Emirates. The situation was further complicated by stalled peace negotiations between the United States and Iran, now in their sixth week of ceasefire. Former U.S. President Donald Trump added to the tension with a social media warning directed at Iran, emphasizing the urgency of the talks.
Brent crude prices surged by up to 1.77% early on Monday, reaching $111.16 per barrel, marking the highest level in nearly two weeks. The price later settled at $110 after Iran indicated it had responded to a new U.S. proposal aimed at resolving the conflict. Iranian Foreign Ministry spokesperson Esmaeil Baqaei noted that discussions were ongoing with the help of a Pakistani mediator, though details were sparse. The bond market also experienced volatility, with the 10-year U.S. Treasury yield climbing to 4.631%, its peak since February 2025, before easing to 4.599%.
In the United Kingdom, political uncertainty contributed to turbulence in government bonds, as the 10-year gilt yield reached 5.19%, surpassing an 18-year high recorded last Friday. It later eased to 5.15%. Speculation over a potential leadership challenge to Prime Minister Keir Starmer by Manchester Mayor Andy Burnham added to the instability. Meanwhile, UK Chancellor Rachel Reeves joined other G7 finance ministers in Paris to address the economic repercussions of the Middle East conflict. Concerns about a potential “shift to the left” in UK politics were voiced by Mohit Kumar of Jefferies, highlighting worries about increased public spending amid fiscal constraints.
Kathleen Brooks from XTB suggested that UK bond yields might recover if the market perceives Burnham as reining in high spending. She pointed out that the critical test for UK markets would be whether the 10-year yield could drop below 5% and if confidence in Burnham could prevent the 30-year yield from reaching 1998-level highs. In Japan, bond yields climbed, with the 10-year yield hitting a near 30-year high of 2.8% as the government prepared to issue new debt to mitigate the economic effects of the Middle Eastern conflict.
European stock markets opened lower, with the Stoxx Europe 600 index, representing major companies across the continent, falling by 0.7%. The UK’s FTSE 100 remained relatively stable. In Asian markets, Japan’s Nikkei and Hong Kong’s Hang Seng index both fell by 1%, while Shanghai’s SSE Composite dipped slightly by 0.1%. South Korea’s Kospi index, however, saw a modest increase of 0.3% by the close of trading.