Global bond sell-off resumes as surging oil prices stoke fears about inflation
Crude jumps above $107 a barrel amid concerns over Middle East conflict and out-of-control government borrowing Nervous investors across big economies have been dumping government bonds, driving up the cost of borrowing, as surging oil prices amplified fears about rising inflation. The cost of a barrel of oil jumped 6% to above $107 on Thursday amid concerns that advances by Houthi rebels along…
Recent events have reignited a global sell-off of government bonds, triggered by surging oil prices and fears of inflation. Crude oil prices breached the $107 per barrel mark due to concerns over conflict in the Middle East and irresponsible government spending. The Middle East conflict, particularly the advances of Houthi rebels in Yemen, has the potential to disrupt Saudi crude exports, contributing to the oil price surge.
The global bond sell-off intensified as nervous investors across major economies dumped government securities, pushing borrowing costs higher. This reaction followed the Middle East developments, which were accompanied by broader concerns about excessive government borrowing.
Higher oil prices, which have been on the rise since the resumption of hostilities in the Iran war, are expected to fuel inflation. In response, central banks are likely to raise interest rates, potentially slowing economic growth. Donald Trump has suggested that the Iran conflict could persist until after the November US midterm elections, predicting that oil prices would subsequently drop.
However, the European Central Bank (ECB) raised its key interest rate to 2.5% amid concerns that inflation would persist longer than previously anticipated.
The sell-off continued in London on Thursday, with the yield on 10-year UK government bonds surpassing 5.37%, the highest level since 2007. This development poses a challenge for the new Chancellor, John Healey, as higher interest rates will increase the cost of future investments and reduce fiscal flexibility ahead of his first budget on October 28th. Meanwhile, concerns about higher energy bills due to rising oil and gas prices are prompting the government to consider measures to support consumers during the winter.
In the US, the sell-off led to increased yields on 10-year borrowing, reaching 4.92% – the highest since 2023. Despite Treasury Secretary Scott Bessent intervening by buying back $6 billion in government debt, investors responded by deepening the sell-off. Experts believe that a sustained decline in long-term yields requires genuine shifts in macroeconomic policy, such as reducing government spending or raising interest rates.
At the Federal Reserve, policymakers will meet next week under the new chair, Kevin Warsh, to determine interest rates, with expectations of a potential rate hike. This move may anger Trump, who has advocated for rate cuts. Meanwhile, several UK data releases are scheduled over the next week, providing insights into the resilience of the British economy amid the Iran conflict and rising oil prices.
The Bank of England will also meet next week, likely maintaining the UK's key interest rate at 3.75% for now, as they continue to assess the impact of higher oil prices.
Written by urgent.news from Guardian Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
