Brent crude oil has slipped back to $110.40 a barrel, up 1% today, having hit $112/barrel early today as efforts to end the Iran war appear to have gained momentum. This represents a significant decline from the previous highs that had fueled global inflation fears and bond market selloffs. Foreign ministry spokesman Esmaeil Baqaei told a press briefing: "As we announced yesterday, our concerns were conveyed to the American side." The oil price decline provides crucial relief to markets that had been pricing in continued inflationary pressures from elevated energy costs.
UK 30-year bond yields have dropped to 5.808%, a decline of four basis points from the 28-year high of 5.85% set on Friday afternoon. This recovery comes after UK 10-year gilt yields had jumped 26 basis points last week to an 18-year high of 5.187% amid domestic political upheaval as Prime Minister Keir Starmer's future was called into question. Sterling has risen by over half a cent to $1.338 against the US dollar following the bond market recovery. Despite Andy Burnham's attempts to reassure bond investors by saying he supports the fiscal rules, UK government bonds are still being buffeted by the global turmoil, with 10-year gilt yields up to 5.19% amid ongoing market concerns.
The International Monetary Fund has raised the UK's growth forecast for 2026 and urged the country to 'stay the course' on deficit reduction in its latest economic assessment. IMF officials emphasized that maintaining fiscal discipline will be crucial for market confidence, as reported by The Economic Times. Germany's top central banker Joachim Nagel has declared that central bankers can do 'a lot more' to calm the financial markets, as he arrived in Paris for the G7 finance chiefs meeting. Nick Twidale, chief markets analyst at ATFX Global, noted that the rates market has been grappling with inflation caused by Middle East strains and oil price impacts, highlighting the broader global context of current market movements.
Government bonds from Tokyo to New York extended losses on Monday as rising energy prices due to the Iran war fanned inflation fears and stoked investor wagers on rate hikes from central banks around the world. Benchmark 10-year U.S. Treasury yields jumped as much as 3.6 basis points to their highest since February 2025 at 4.631% in early Monday trading, having climbed more than 20 basis points last week. The two-year yield touched a 14-month top of 4.105%, while the 30-year U.S. Treasury yield rose to a one-year high of 5.159%. Japanese government bond yields reached record highs with the 30-year JGB yield jumping more than 10 basis points to 4.200% and the 10-year yield touching its highest since October 1996 at 2.800%. Brent crude futures climbed to $111 a barrel as efforts to end the Iran war appeared to have stalled following a drone strike at a nuclear power plant in the United Arab Emirates.
Market ructions are top of mind for G7 finance ministers who met in Paris on Monday, with French Finance Minister Roland Lescure noting that "We are no longer in a period where public debt is not a subject." Kenneth Broux, head of corporate research FX and rates at Societe Generale, said to stop what he called a 'slow-motion crash' in the bond market would require a retreat in oil prices, recession fears growing enough to spark a safe-haven rush to bonds, or prices falling low enough to attract buyers. Olle Holmgren, strategist at SEB Research, said the Iran war remains the main focus for markets, with the impact on growth and output prices being closely watched. The pattern is the same across major bond markets, from the euro zone to Britain and Japan, where yields are at record highs, as noted by Reuters. Central banks set interest rates, but bond markets set the rate at which companies, individuals and governments can borrow, meaning that anything from a car loan to financing for a multi-billion-dollar data centre is affected.
