Oil prices experienced an uptick on Monday as geopolitical tensions in the Middle East stirred inflation concerns and speculation about potential interest rate hikes by central banks. Brent crude, the global oil price benchmark, rose by as much as 1.77% to hit $111.16 per barrel, marking its highest point in almost two weeks, before settling back to $110. This surge followed an attack on a nuclear power plant in the United Arab Emirates and a social media warning from Donald Trump amidst stalled peace talks between the U.S. and Iran. Trump cautioned Iran, stating, “For Iran, the Clock is Ticking, and they better get moving, FAST, or there won’t be anything left of them. TIME IS OF THE ESSENCE!” Iran later indicated it had responded to a new U.S. proposal through exchanges facilitated by a Pakistani mediator.
Global bond markets showed volatility in response to these developments. The yield on the benchmark 10-year U.S. Treasury hit 4.631%, a peak not seen since February 2025, before easing to 4.599%. Meanwhile, the UK saw its 10-year gilt yield rise to 5.19%, surpassing an 18-year high reached just days earlier, though it later fell back to 5.15%. This uncertainty in UK government bonds was also fueled by domestic political instability, as speculation grew over a potential leadership challenge facing Prime Minister Keir Starmer from Manchester Mayor Andy Burnham later in the year. Additionally, UK fiscal policies remain a concern, with the government struggling to implement spending cuts, leading to fears of increased public spending under a possible left-leaning shift in leadership.
Economic analysts, such as Mohit Kumar from Jefferies, expressed concern over the UK’s financial outlook, noting that further tax increases might be counterproductive given the current state of public finances. Kathleen Brooks from XTB suggested that UK bond yields could potentially recover if the markets perceive a tempering of Burnham’s high-spending tendencies. The focus for UK markets will be on whether the 10-year yield can dip below 5% and whether confidence in Burnham can prevent the 30-year yield from revisiting 1998-level highs.
In Japan, bond yields surged, with the 10-year yield reaching nearly a 30-year high at 2.8% as the government prepared to issue new debt to mitigate the economic impacts of Middle Eastern conflicts. This financial turbulence was mirrored in stock markets, where the Stoxx Europe 600 index, which includes major European companies, fell by 0.7% in early trading. The UK’s FTSE 100 index remained mostly unchanged. In Asia, Japan’s Nikkei index dropped by approximately 1%, Hong Kong’s Hang Seng index decreased by a similar margin, while Shanghai’s SSE Composite saw a minor dip of 0.1%. Conversely, South Korea’s Kospi index closed slightly higher, up by 0.3%.