Oil prices rose and global bonds experienced volatility on Monday as escalating tensions in the Middle East reignited inflation concerns and expectations that central banks may need to raise interest rates. Brent crude, the international benchmark, climbed after an attack on a nuclear power plant in the United Arab Emirates, with peace talks between the US and Iran stalling in the sixth week of a ceasefire.
Donald Trump warned on social media that Iran must act quickly, 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!” Brent crude initially surged by as much as 1.77% to $111.16 a barrel, its highest level in nearly two weeks, before easing back to around $110 after Iran indicated it had responded to a new US proposal mediated by Pakistan.
In the UK, the 10-year gilt yield hit 5.19%, surpassing an 18-year high reached on Friday, before falling back to 5.15%. The volatility in UK government bonds is also being driven by political instability, as traders anticipate a potential leadership challenge to Prime Minister Keir Starmer from Manchester Mayor Andy Burnham later this year. Mohit Kumar, chief economist at Jefferies, noted that bond investors are worried about a “shift to the left” in the UK, which could lead to increased public spending despite limited fiscal room.
However, Burnham sought to calm investor concerns over the weekend, stating, “I support the fiscal rules, there needs to be a plan to get debt down.” Kathleen Brooks, research director at XTB, suggested that UK bond yields could recover if markets believe Burnham will moderate his spending plans. The key test will be whether the 10-year yield can fall below the 5% level.
Globally, the 10-year US Treasury yield hit 4.631%, its highest since February 2025, before paring back to 4.599%. In Japan, the 10-year yield rose to an almost 30-year high of 2.8% as the government prepared to issue fresh debt to cushion the economic impact of the Middle East conflict. European stock markets opened lower, with the Stoxx Europe 600 dropping 0.7%, while the UK’s FTSE 100 remained flat. Asian markets also saw declines, with Japan’s Nikkei and Hong Kong’s Hang Seng each falling about 1%.
