Brent crude climbed toward $108 a barrel on Monday after Donald Trump rejected Iran's weekend proposal to reopen the Strait of Hormuz, sending yields on US, UK and Japanese government bonds higher and pulling equity futures lower. BNP Paribas Asset Management's Ecaterina Bigos said the combination of strong growth and high energy prices posed a risk to future inflation expectations.
Oil rose to almost $108 a barrel on Monday after hopes for a US-Iran deal on the Strait of Hormuz appeared to fade over the weekend. Brent crude was up 2.3% at about $106.65 a barrel in early London trading, following Trump's rejection of Tehran's proposal to reopen the strait.
Bond yields climb across markets
The renewed selling pressure spread quickly into government debt. The 10-year US Treasury yield rose 0.02 percentage points to 5.2% as prices fell, while the rate-sensitive two-year yield added 0.04 percentage points to 4.91%. Jim Reid, global head of macro research at Deutsche Bank, described the standoff as a stalemate, noting little sign of a breakthrough over the weekend.
UK and European debt moved in tandem. The 10-year gilt yield rose 0.04 percentage points to 5.4%, while the 10-year Bund yield held at 3.62%, keeping German borrowing costs at their highest since 2011. According to Geoffrey Yu, senior strategist at BNY: "There's just a continuation of recent trends." He added that supply constraints on energy would likely persist.
In Asia, two-year Japanese government bond yields gained as much as 0.05 percentage points to 1.98% before easing to about 1.97% — two-year JGBs have not traded above 2% since 1995. The move followed the Bank of Japan's July minutes, which showed some members calling for faster rate rises to contain inflation expectations. South Korea's 10-year bond rose 0.15 percentage points to 4.54%, while Australian and New Zealand 10-year yields added 0.05 and 0.02 percentage points respectively.
Equities and gold retreat
Stock futures tracking the S&P 500 and Nasdaq 100 fell 0.4% and 0.9% respectively. In Asia, China's CSI 300 slipped 2.2% to its lowest level since August 2025, while South Korea's Kospi fell 2.7% as both markets resumed trading after mid-autumn festival holidays.
Gold fell 3% to $4,160 a troy ounce. Investors said central banks that built up bullion holdings have sold reserves during periods of higher energy prices to protect their currencies.
Refined products in focus
Ecaterina Bigos, senior market strategist at BNP Paribas Asset Management, said the combination of strong growth and high energy prices posed a risk to future inflation expectations. Norbert Ling, Asia-Pacific head of fixed income portfolio management at Invesco, said prices for refined oil products matter more than the headline Brent price because they have a more direct impact on inflation. Refined products' prices have risen partly because of production capacity cuts in Europe and Asia in recent years.
Bigos also linked the broader bond selloff to heavier corporate issuance funding AI infrastructure buildouts, creating competition for capital. China's 10-year government bonds sidestepped the rout, trading flat at 1.67%, which Bigos called a trajectory divergent from global monetary policy.
Source: Markets (FT)
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