Oil prices climbed and global bond markets experienced fluctuations on Monday amid rising tensions in the Middle East, sparking concerns over inflation and expectations for potential interest rate hikes by central banks. Brent crude, a key international oil benchmark, increased following an attack on a nuclear power facility in the United Arab Emirates. Meanwhile, stalled peace negotiations between the US and Iran added to the uncertainty, with former President Donald Trump expressing urgency on social media for Iran to act swiftly.
Brent crude spiked by up to 1.77%, reaching $111.16 per barrel, marking its highest level in nearly two weeks early Monday, before easing to $110 per barrel. This adjustment came after Iran indicated it had responded to a new US proposal aimed at resolving the ongoing conflict, as communicated by Iran’s foreign ministry spokesperson, Esmaeil Baqaei, who noted ongoing exchanges facilitated by a Pakistani mediator.
Bond markets showed volatility, with the US 10-year Treasury yield peaking at 4.631%, the highest since February 2025, before settling at 4.599%. In the UK, the 10-year gilt yield rose to 5.19%, surpassing an 18-year high reached on Friday, before dipping back to 5.15%. Political instability in the UK contributed to this volatility, as speculation grows over a potential leadership challenge to Prime Minister Keir Starmer from Manchester Mayor Andy Burnham later this year. The UK chancellor, Rachel Reeves, and other G7 finance ministers convened in Paris to discuss the economic repercussions of the Middle East conflict.
Economic analysts voiced concerns about the UK’s fiscal policy. Mohit Kumar from Jefferies highlighted fears of a “shift to the left” in the UK, warning of increased public spending without adequate fiscal space, alongside unproductive tax increases. Kathleen Brooks of XTB suggested that UK bond yields might recover, depending on Burnham’s fiscal policies, with the key test being whether the 10-year yield can dip below 5%.
In Asia, Japan’s bond yields rose, with the 10-year yield reaching an almost 30-year high of 2.8% as the government prepared to issue new debt to mitigate the economic impact of the Middle East war. Stock markets in Europe opened lower, with the Stoxx Europe 600 index dropping by 0.7%, while the UK’s FTSE 100 remained largely unchanged. Asian markets saw declines as well, with Japan’s Nikkei and Hong Kong’s Hang Seng index both falling by about 1%, although South Korea’s Kospi posted a slight gain of 0.3%.