Oil prices experienced an uptick while global bonds saw fluctuations on Monday, as escalating tensions in the Middle East spurred concerns about inflation and led to speculation that central banks might raise interest rates. Brent crude, the global standard for oil, increased following an attack on a nuclear power facility in the United Arab Emirates. This development coincided with a stall in peace negotiations between the United States and Iran, now in their sixth week of a ceasefire. Former U.S. President Donald Trump took to social media with a stark warning to Iran: “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!”
On Monday morning, Brent crude climbed by up to 1.77%, reaching $111.16 per barrel, marking its highest point in almost two weeks before settling at $110 a barrel. This adjustment came after Iran announced it had responded to a new U.S. proposal aimed at resolving the conflict. Esmaeil Baqaei, the spokesperson for Iran’s foreign ministry, mentioned that communications were ongoing through a Pakistani mediator, though he did not elaborate further.
Meanwhile, the bond market experienced volatility, with the U.S. 10-year Treasury yield rising to 4.631%, the highest since February 2025, before slightly decreasing to 4.599%. In the UK, the 10-year gilt yield peaked at 5.19%, surpassing the 18-year high from the previous Friday, before dropping back to 5.15%. The instability in the UK bond market is partly attributed to political uncertainty, as traders speculate that Prime Minister Keir Starmer could face a leadership challenge from Manchester mayor Andy Burnham later in the year. This comes as UK Chancellor Rachel Reeves and other G7 finance ministers met in Paris on Monday to address the economic repercussions of the Middle Eastern conflict.
Mohit Kumar, chief economist at the brokerage Jefferies, noted that bond investors are concerned about a potential “shift to the left” in the UK. He pointed out that the UK’s fiscal situation is already strained, with the government unable to implement spending cuts. A shift to the left might lead to increased public spending, despite limited fiscal capacity. Further tax increases, he argued, might not generate additional revenue. Kathleen Brooks, research director at broker XTB, suggested that UK bond yields might recover this week if markets perceive Burnham’s fiscal policies to be under control.
Elsewhere, Japan saw its bond yields rise, with the 10-year yield reaching an almost 30-year high at 2.8% as the government prepared to issue new debt to mitigate the economic impact of the Middle Eastern conflict. European stock markets opened lower on Monday, with the Stoxx Europe 600 falling by 0.7%, while the UK’s FTSE 100 remained mostly unchanged. In Asia, Japan’s Nikkei index fell by about 1%, Hong Kong’s Hang Seng index dropped 1%, and Shanghai’s SSE Composite was down 0.1%, though South Korea’s Kospi closed 0.3% higher.