Global markets experienced turbulence on Monday as escalating tensions in the Middle East drove oil prices higher and caused fluctuations in bond markets. Brent crude, the international oil benchmark, saw a rise following an attack on a nuclear power plant in the United Arab Emirates. This incident occurred amidst stalled peace negotiations between the US and Iran, now in their sixth week of ceasefire. Former US President Donald Trump added to the charged atmosphere with a social media message urging Iran to act swiftly in the negotiations, warning of dire consequences if they did not.
Brent crude oil prices climbed by as much as 1.77% to reach $111.16 per barrel, marking its highest level in nearly two weeks. However, prices eased back to $110 per barrel after Iran acknowledged receiving a new proposal from the US aimed at resolving the conflict. Esmaeil Baqaei, a spokesperson for Iran’s foreign ministry, indicated that discussions were ongoing through a Pakistani intermediary, although no further details were provided.
Simultaneously, global bond markets were in flux, with the benchmark 10-year US Treasury yield reaching 4.631%, its highest since February 2025, before settling slightly lower at 4.599%. In the UK, the 10-year gilt yield peaked at 5.19%, surpassing a previous 18-year high, before receding to 5.15%. The volatility in UK bonds was partly attributed to political uncertainty, as traders speculated that Prime Minister Keir Starmer might face a leadership challenge from Manchester Mayor Andy Burnham later this year. This uncertainty was compounded by discussions among G7 finance ministers in Paris, where UK Chancellor Rachel Reeves and her counterparts were assessing the economic ramifications of the Middle Eastern conflict.
Mohit Kumar, chief economist at Jefferies, noted concerns among bond investors regarding a potential leftward shift in UK fiscal policy, suggesting that increased public spending could strain the country’s already precarious fiscal situation. Kathleen Brooks, research director at XTB, expressed that UK bond yields might stabilize if markets perceived Burnham as moving away from high spending practices. The focus for investors would be whether the UK’s 10-year yield could dip below the 5% threshold and if confidence in Burnham would ease the 30-year yield from its 1998-level highs.
Elsewhere, Japan’s bond yields increased, with the 10-year yield hitting an almost 30-year high of 2.8% as the government prepared to issue new debt to mitigate the economic impact of the conflict. Stock markets reflected the global uncertainty, with European markets opening lower. The Stoxx Europe 600 fell by 0.7%, while the UK’s FTSE 100 remained relatively stable. In Asia, Japan’s Nikkei and Hong Kong’s Hang Seng index both dropped by about 1%, whereas South Korea’s Kospi closed 0.3% higher.