Global bond yields climb to monthly highs as oil jumps 13%

U.S., U.K. and eurozone government bond yields jumped to their highest levels this month Tuesday as stalled U.S.-Iran peace talks drove Brent crude up 2.6 percent to $89.99 a barrel, reviving inflation concerns.

"Friday's weak labor data is no longer enough on its own to anchor yields," said Patrick Munnelly, partner at Tickmill Group.

The 10-year U.S. Treasury yield climbed to 4.735 percent, the highest since July 31, while the 10-year gilt hit 5.049 percent, an 11-day high, and the 10-year Bund advanced to 3.204 percent, a nine-day high, Tradeweb data show. The move reversed last week's decline that followed weaker-than-expected U.S. nonfarm payrolls.

The conflict has overtaken soft labor data as the dominant driver of rate expectations, with the Federal Reserve now facing the possibility of raising borrowing costs to contain inflation. Market focus turns to U.S. CPI data due Wednesday, where a firm print with higher gasoline prices would validate the hawks.

President Trump on Monday unveiled new economic pressure measures on Iran after the nation demanded compensation from the U.S. for war damage. Iran's Revolutionary Guard Corps has said it will not reopen the Strait of Hormuz until Washington complies with demands including compensation, sanctions relief and the release of frozen assets. The waterway carries about 21 percent of global oil trade, making it the main channel through which the conflict transmits to energy prices and inflation expectations.

Brent crude is roughly 13 percent higher than a week ago, and the sustained climb has pushed the risk premium back into bond markets. The 30-year U.S. Treasury yield widened to 5.24 percent from 5.20 percent on Friday. Equities came under modest pressure, with the S&P 500 down 0.05 percent at 7,753 and the Nasdaq Composite down 0.34 percent, while energy shares outperformed as crude climbed. The dollar eked out gains against most G10 peers, with the yen the laggard as USD/JPY touched 159.17, and gold traded at $4,350.91 an ounce.

U.K. bond investors face inflation concerns as well as fiscal uncertainty ahead of the budget statement in October. Markets await the first estimate of second-quarter GDP due Thursday for clues on the state of the economy. Investors fully price one quarter-point rate rise by the Bank of England in 2026, and a 19 percent probability of a second increase by year end, LSEG data show.

CPI Print to Decide the Next Leg

"A soft inflation print could restore the post-jobs rally in bonds. A firm print, especially with higher gasoline prices feeding expectations, would validate the hawks," Munnelly said.

"A soft CPI can still help tactically, but the question is whether it will be enough to fully offset energy and supply pressure ahead of September," said Evelyne Gomez-Liechti, multi-asset strategist at Mizuho.

The Federal Open Market Committee will receive another CPI reading and a further jobs report before its September meeting, while the Jackson Hole Symposium also looms. Cleveland Fed President Beth Hammack, a hawkish voter, said Monday the current rate is not meaningfully restricting the economy and that "now is the time to act," suggesting some number of rate hikes may be needed.

If Wednesday's CPI comes in firm, yields could extend their climb into September, raising borrowing costs globally and pressuring equity valuations. A soft print would restore the post-jobs bond rally, at least tactically. The ongoing conflict and fading prospects of a near-term end to the war could continue weighing on bond markets, analysts said.

This article is for informational purposes only and does not constitute investment advice.