Global government bonds are selling off again, pushing yields to new highs, as oil prices have risen above $91 a barrel, stoking inflation fears.
Renewed fighting in the Middle East pushed Brent crude up 1.3% at $91.66 a barrel, following Monday’s 2.7% drop. US West Texas intermediate, the other oil benchmark, is up 0.77% at $86.42 a barrel, after a 2.8% fall on Monday.
The US and Iran exchanged fire for the first time in a month on Monday, with missiles and drones fired at Iranian rocket launchers on an island in the strait of Hormuz, prompting Iran to target US military bases in Jordan and the United Arab Emirates in response. Donald Trump threatened further action, telling Fox News: “We’re going to hit them hard.”
Japan’s 10-year benchmark government bond hit 3% for the first time in a generation, and is now up almost 5 basis points at 2.99%. The US 10-year Treasury yield rose 2.6bps to 4.78%, the highest since early 2025.
UK government borrowing costs have risen to the highest since 2008, as higher oil prices stoke inflation fears.
The yield on the 10-year gilt has jumped 7 basis points to 5.223%, the highest since June 2008.
Germany’s 10-year yield, the benchmark for the eurozone, rose 2 basis points to 3.34%, a fresh 15-year high.
Inflation fears have boosted expectations of interest rate increases. Markets are pricing in a rate increase in New Zealand on Wednesday, while the European Central Bank is widely expected to raise its key interest rates by 0.25 percentage points at its next meeting on 10 September. Traders also see a better than even chance of rate rises in the US and Japan this month.
The Bank of England is not expected to move until later this year, with markets pricing in a quarter-point rate increase to 4% in about November or December.
In Asia, shares were mixed – Japan’s Nikkei was flat, while Hong Kong’s Hang Seng lost 0.8% and South Korea’s Kospi eked out a 0.2% gain after earlier losses.
Today’s key events
• 9am BST: eurozone Manufacturing PMI
• 9.30am BST: Bank of England data on mortgage approvals and consumer credit
• 9.30am BST: UK manufacturing PMI
• 3pm BST: US manufacturing PMI
We’ll be tracking all the main events throughout the day on our business live blog …
