Bond markets face fresh selling as oil prices jump, stocks cautious

Borrowing costs in key regions surged on Monday as oil prices surged 3%, following a U.S. strike on an Iranian island. The jump in oil prices intensified worries about potential inflation, prompting central banks to consider further rate hikes. World stocks were cautious on the last trading day of August, while gold and the dollar weakened.

Brent crude reached nearly $92 a barrel after the U.S. attack on Iran, and Tehran retaliated. This raised concerns of further interest rate increases from major central banks, following Fed Chairman Kevin Warsh's hawkish remarks at Jackson Hole. Kristina Clifton, a senior economist at Commonwealth Bank of Australia, stated that the Fed's tightening cycle has been advanced, anticipating a September rate increase.

The probability of a September Fed rate hike rose to around 60%, up from 50% the previous week. Michael Feroli, JPMorgan's chief U.S. economist, believed a hike could still occur in December. The European Central Bank is expected to raise rates during its meeting on September 9-10. U.S. stock futures dropped as European trading continued.

Asia saw declines in Japan's Nikkei and MSCI's world index, while Chinese property developers faced pressure after Beijing announced regulatory changes. The U.S. Treasury Secretary met with the Bank of Japan's head, with speculation of a possible September rate hike in Japan.