Global Bond Sell-Off Deepens as Oil Surge Fuels Inflation and Rate Hike Fears

A global sell-off in government bonds intensified on Tuesday, pushing borrowing costs sharply higher and sending equity markets lower as investors worried that rising energy prices could force central banks to raise interest rates.

The latest market turbulence followed renewed fighting between the United States and Iran, which pushed crude oil prices higher and increased concerns that energy-driven inflation could remain elevated.

The heavy bond selling saw the yield on 30-year UK government bonds rise to its highest level since 1998, while the 10-year yield climbed to a level last recorded during the 2007-08 global financial crisis.

Japan’s 10-year government bond yield also touched three per cent, its highest level in about three decades, amid concerns over plans for increased government spending.

In the United States, the yield on 30-year Treasury bonds stood at 5.27 per cent, close to levels last seen in 2007. The 10-year Treasury yield also climbed to its highest level since January 2025.

Deutsche Bank strategist Jim Reid described the bond sell-off as a global phenomenon, attributing much of the latest pressure to the escalation of the US-Iran conflict.

European stocks also came under pressure, with Frankfurt’s DAX falling more than one per cent and London’s FTSE 100 declining after markets reopened following a public holiday.

The pressure was compounded by eurozone inflation data showing consumer prices rose to a three-year high of 3.3 per cent in August. The figure strengthened expectations that the European Central Bank could raise interest rates at its meeting next week.

Oil prices also extended their gains, with Brent crude rising 1.8 per cent to $92.09 per barrel and West Texas Intermediate climbing 2.4 per cent to $87.79 per barrel at around 1110 GMT.

The latest increase followed renewed military exchanges between Washington and Tehran after weeks of relative calm.

US President Donald Trump has also threatened further action against Iran, raising concerns about potential disruption to global energy supplies.

Investors are particularly watching developments around the Strait of Hormuz, a major global energy shipping route, as continued tensions in the region could keep oil prices elevated.

Wealth Club chief investment strategist Susannah Streeter said supply concerns had returned to the forefront following the latest threats against Iran and its oil infrastructure.

Attention is now turning to key economic data ahead of the US Federal Reserve’s policy meeting on September 16.

Upcoming employment and consumer price data could influence the Fed’s decision on interest rates, particularly after Fed Chair Kevin Warsh adopted a hawkish tone in a speech last Friday.

Asian markets followed Wall Street lower on Tuesday, with Tokyo, Hong Kong and Shanghai all recording losses.

The Japanese yen also weakened against the dollar, despite comments from US Treasury Secretary Scott Bessent that he expected Japan to support the currency. The remarks were interpreted by some investors as a signal that the Bank of Japan could tighten monetary policy at its meeting later this month.

Elsewhere, shares in fast-fashion company Shein fell as much as 10 per cent during its debut on the Hong Kong Stock Exchange after the company raised $1.7 billion through its initial public offering. The stock later recovered most of its losses to close almost flat.

Taiwanese chipmaker MediaTek, meanwhile, saw its shares surge nearly 10 per cent after Nvidia announced a $3.5 billion investment in the company.

Key Market Figures

• Brent crude: Up 1.8% at $92.09 per barrel
• WTI crude: Up 2.4% at $87.79 per barrel
• FTSE 100: Down 0.8%
• CAC 40: Down 0.3%
• DAX: Down 1.1%
• Nikkei 225: Down 0.2%
• Hang Seng: Down 0.9%
• Shanghai Composite: Down 0.2%
• Dow Jones: Down 0.7%
• Dollar/yen: 160.11 yen
• Euro/dollar: $1.1594
• Pound/dollar: $1.3536

The combination of higher oil prices, persistent inflation and rising bond yields has heightened concerns that central banks could maintain or increase borrowing costs, potentially putting further pressure on economic growth and financial markets