Global bond yields hit multi-decade highs as Middle East tensions send oil prices surging

Government bond markets around the world buckled on September 1 as renewed fighting between the US and Iran sent oil prices sharply higher and revived fears that central banks will have no choice but to keep raising interest rates. The US 10-year Treasury yield climbed to roughly 4.78%, its highest level since January 2025, while counterparts in Japan, Germany, and the UK all hit their own milestones of pain.

A synchronized global sell-off

Japan’s 10-year JGB yield pushed toward 3%, a level the country hasn’t seen since 1996. Germany’s 10-year Bund yield surged to 3.36%, a 15-year high, while UK gilt yields blew past 5.25%, their steepest ascent since the 2008 financial crisis.

Brent crude oil jumped roughly 2% to 4% on the day, trading between $91 and $94 per barrel. The spike came after the first direct clashes between US and Iranian forces in over a month, reigniting concerns about supply disruptions through the Strait of Hormuz, the narrow waterway through which roughly a fifth of the world’s oil passes daily.

Rate hike expectations climb

Markets assigned a 65% to 74% probability of a Federal Reserve rate hike in September following hawkish signals from policymakers, a sharp uptick from where expectations sat just weeks ago.

Market analysts described the convergence of rising oil, hawkish central banks, and ballooning government deficits as a “perfect storm” for bond markets. The ripple effects extended beyond fixed income, with interest-rate-sensitive sectors from real estate to technology bearing the brunt of the equity selling.

The Strait of Hormuz problem

The US-Iran conflict has been simmering throughout 2026, escalating into direct confrontation earlier this year. The Strait of Hormuz has been at the center of the tension, with the clashes on September 1 marking the first direct engagement in over a month. The UK, with gilt yields above 5.25%, faces climbing debt-servicing costs that constrain fiscal policy in meaningful ways.

What comes next

For businesses and consumers, higher government bond yields ripple through the entire economy, pushing up mortgage rates, corporate borrowing costs, and the discount rates used to value equities and real estate. Companies that loaded up on cheap debt during 2020 and 2021 will face significantly steeper refinancing costs.

The crypto market faces its own headwinds from rising real yields. Higher risk-free rates raise the opportunity cost of holding non-yielding assets, a dynamic that has historically created drag on digital asset prices when sustained over time.