Oil prices experienced an increase on Monday, alongside fluctuations in global bonds, as renewed tensions in the Middle East heightened concerns over inflation and the likelihood of interest rate hikes by central banks. Brent crude, the global oil benchmark, climbed to $111.16 per barrel, marking its highest point in nearly two weeks, following an attack on a nuclear power facility in the United Arab Emirates. However, the price slightly retracted to $110 a barrel after Iran acknowledged a new proposal from the United States aimed at resolving the ongoing conflict.
In the realm of diplomacy, peace negotiations between the United States and Iran encountered obstacles during the sixth week of a ceasefire. Former President Donald Trump emphasized the urgency of the situation, stating on social media that Iran must act swiftly to avoid severe consequences. Meanwhile, Iran’s foreign ministry spokesperson, Esmaeil Baqaei, mentioned that discussions were ongoing through a Pakistani mediator, although specific details were not disclosed.
The bond market showed volatility, with the benchmark 10-year U.S. Treasury yield reaching 4.631%, its highest level since February 2025, before settling at 4.599%. In the United Kingdom, the 10-year gilt yield surged to a peak of 5.19%, surpassing the 18-year high it achieved on Friday, before dropping to 5.15%. Political instability in the UK, with speculation about a potential leadership challenge to Prime Minister Keir Starmer by Manchester Mayor Andy Burnham, also contributed to the fluctuations in government bonds.
As UK Chancellor Rachel Reeves and other G7 finance ministers convened in Paris to discuss the economic ramifications of Middle Eastern conflicts, concerns over the UK’s fiscal outlook persisted. Mohit Kumar, chief economist at Jefferies, highlighted worries about a potential shift towards increased public spending, which the government may lack the fiscal capacity to support. Kathleen Brooks, research director at XTB, suggested that UK bond yields might recover if market perceptions of Burnham’s fiscal policies improve, with attention focused on whether the 10-year yield can dip below 5%.
In Japan, 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 conflict. Meanwhile, European stock markets opened lower, with the Stoxx Europe 600 dropping by 0.7%, and the UK’s FTSE 100 index remaining relatively stable. In Asia, Japan’s Nikkei and Hong Kong’s Hang Seng index both declined by about 1%, while Shanghai’s SSE Composite fell 0.1%. Conversely, South Korea’s Kospi closed 0.3% higher.