Brent crude climbed above $108 a barrel on Monday after hopes faded for a US-Iran deal to reopen the Strait of Hormuz, pushing the 10-year US Treasury yield to its highest level since 2007. The selloff spread through UK, German, French and Italian government bonds, while stock markets in the US and Asia weakened.
Brent crude rose more than 3% to as much as $108.27 a barrel in London morning trading on Monday, after President Donald Trump rejected Iran's proposal over the weekend to reopen the Strait of Hormuz.
Treasury Yields Reach 2007 Levels
The 10-year US Treasury yield rose 0.05 percentage points to 5.23% as bond prices fell, while the two-year yield climbed to 4.92%. US borrowing costs have soared in recent weeks to levels not seen since before the financial crisis, as signs of persistent inflation and strong growth pushed investors to bet on higher interest rates. The Federal Reserve raised borrowing costs earlier this month for the first time since 2023, and futures markets are now betting on two more quarter-point rises by January.
Geoffrey Yu, senior strategist at BNY in London, said the trend would persist. According to the Financial Times: "That undercurrent of supply constraints on energy is going to remain."
Selloff Spreads Through Europe and Asia
UK government bonds weakened further, with the 10-year gilt yield up 0.06 percentage points to 5.42%, close to its highest level since 2008. German Bund yields rose 0.03 percentage points to 3.65%, keeping borrowing costs at their highest since 2011. French and Italian 10-year yields hit their highest levels since the Middle East conflict began, with French borrowing costs now at their highest since 2008.
In Japan, two-year government bond yields gained as much as 0.05 percentage points to hit 1.98% before dipping back to about 1.97%. Two-year JGBs have not traded above 2% since 1995. The move followed the Bank of Japan's July meeting minutes, which showed some members calling for faster rate rises to contain inflation expectations. Chinese 10-year government bonds sidestepped the rout, trading flat at 1.67%.
Equities Weaken as Oil Price Weighs on Markets
Futures tracking the S&P 500 fell 0.5% and Nasdaq 100 futures dropped 1.1%. In Asia, China's CSI 300 index 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.
Source: Financial Times
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