Financial markets worldwide suffered widespread losses Monday as escalating energy costs stemming from the Middle East conflict heightened concerns about inflation and prompted investor speculation about potential interest rate increases by central banks globally.
The benchmark 10-year U.S. Treasury yield, which operates in reverse to bond prices, surged to its peak level since February 2025 during early Asian trading, reaching 4.6310% after climbing over 20 basis points during the previous week.
The two-year yield hit a 14-month peak at 4.1020%, while the 30-year U.S. Treasury yield climbed to a one-year maximum of 5.1590%.
These developments followed rising oil prices Monday, as diplomatic efforts to resolve the Iran war seemed to have reached an impasse after a drone attack targeted a nuclear facility in the United Arab Emirates.
“Fresh drone attacks on the UAE’s Barakah nuclear plant and Saudi territory, coupled with Trump’s ‘clock is ticking’ ultimatum and a planned Situation Room meeting on Tuesday, have sharply elevated the risk of renewed full-scale hostilities,” said analysts at OCBC.
After more than two months of Middle East conflict, investors are growing increasingly concerned about the economic consequences of the warfare as price pressures intensify and what implications this might have for worldwide interest rate policies.
“The ‘higher for longer’ story is coming back, even if actual rate hikes are still not the base case,” said Charu Chanana, Saxo’s chief investment strategist.
Financial markets are currently indicating greater than 50% odds that the Federal Reserve will implement rate increases by December, based on the CME FedWatch tool, while the European Central Bank is expected to raise rates as soon as next month and the Bank of England approximately twice during this year.
The shift in U.S. Treasury yields affected broader markets, with Germany’s bund futures and French OAT futures each declining roughly 0.4% during early trading sessions.
In Japan, yields on the 30-year Japanese government bond jumped 17 basis points to reach record highs at 4.170% while the 10-year yield hit its peak level since October 1996 at 2.800%.
The Japanese government bond selloff intensified after Reuters reported that Tokyo will probably issue additional debt to help finance a proposed supplementary budget designed to mitigate economic damage from the Middle East war.
