Oil prices climbed while global bonds experienced volatility on Monday amid escalating tensions in the Middle East, sparking inflation concerns and speculation that central banks might be compelled to raise interest rates. The price of Brent crude, an international oil benchmark, surged following an attack on a nuclear power facility in the United Arab Emirates. This development coincided with a stall in US-Iran peace negotiations, now in their sixth week of a ceasefire. Former President Donald Trump took to social media to warn Iran about the urgency of the situation, 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 saw an increase of up to 1.77%, reaching $111.16 per barrel early on Monday, marking its highest point in nearly two weeks, before settling back to $110 a barrel. This adjustment followed Iran’s announcement of a response to a new US proposal intended to conclude the conflict. Iran’s foreign ministry spokesperson, Esmaeil Baqaei, confirmed ongoing exchanges facilitated by a Pakistani mediator, though details remained sparse.
Bond markets were unsettled; the benchmark 10-year US Treasury yield peaked at 4.631%, its highest since February 2025, before easing to 4.599%. In the UK, the 10-year gilt yield rose to 5.19%, surpassing an 18-year high, only to dip slightly to 5.15%. The instability in UK government bonds is partly attributed to political uncertainty, as traders speculate a potential leadership challenge to Prime Minister Keir Starmer by Manchester Mayor Andy Burnham later this year. UK Chancellor Rachel Reeves, alongside other G7 finance ministers, met in Paris to deliberate on the economic repercussions of the Middle East conflict.
Concerns about a potential shift towards increased public spending in the UK were voiced by Mohit Kumar, chief economist at Jefferies, who noted that the UK’s fiscal situation was already strained. He argued that further tax hikes might not be productive, as the government lacks the fiscal space for additional spending. Kathleen Brooks, research director at XTB, suggested that UK bond yields might recover if the bond markets perceive Burnham as moving away from high-spending policies. She identified the 5% level for the 10-year yield as a critical test for UK markets.
Meanwhile, in Japan, bond yields rose, with the 10-year yield reaching a near 30-year high of 2.8% as the government prepared to issue new debt to mitigate the economic impact of the Middle East conflict. European stock markets opened lower on Monday; the Stoxx Europe 600 dropped 0.7%, while the UK’s FTSE 100 index remained stable. In Asia, Japan’s Nikkei decreased by about 1%, Hong Kong’s Hang Seng index fell 1%, and Shanghai’s SSE Composite experienced a slight decline of 0.1%, whereas South Korea’s Kospi closed 0.3% higher.