Investors Sell Global Bonds as End to Middle East War Isn't in Sight

By Emese Bartha

Global government bond yields soared Monday, as the war in the Middle East escalated further with new U.S. and Iranian threats on energy assets in the region as U.S. President Trump gave a 48-hour deadline to Iran to reopen the Strait of Hormuz.

The continued closure of the Strait of Hormuz, a vital naval way for global energy transport, kept oil prices elevated, stoking global inflation concerns and keeping investors' expectations for interest-rate hikes high.

"Bond markets remain under significant pressure as Trump's 48-hour deadline casts its shadow," Hauke Siemssen, rates strategist at Commerzbank. "The risks of further rising oil prices and inflation expectations appear high."

The 10-year U.S. Treasury yield hit 4.437%, the highest since last July, according to Tradeweb. The 10-year German Bund yield rose to 3.076%, its highest since 2011, LSEG data showed, while the yield on the 10-year U.K. government bond rose to 5.102%, its highest since 2008.

Yields on the bonds of more indebted eurozone countries such as Italy and France also rose sharply, causing their spreads over German yields to widen.

The 10-year Italian BTP yield rose above 4% for the first time since July 2024, hitting a high of 4.055%. Spreads between 10-year Italian and German government bonds hit their widest since mid-2025, while French-German spreads were their widest since November 2025.

The moves came as the price of a barrel of Brent crude oil rose 1% to $113.30, having hit a peak above $119 last week.

The escalation of the war carries stagflation risks, with inflation rising but growth weakening, especially for countries strongly reliant on energy imports, such as eurozone countries.

"Recession on the horizon seems set to be preceded in the short-term by stagflation as the drag on global growth from higher energy prices and the impact on broader inflation pressures from those higher energy prices weighs desperately on risk appetite," First Abu Dhabi Bank analysts said in a note.

The situation lacks visibility as to how long the war will take and how it will end. However, markets could quickly recover if there are any signs of de-escalation.

"History shows that markets can recover swiftly when geopolitical tensions ease," Mark Haefele, chief investment office at UBS Global Wealth Management, said in a note.

A resolution to the war would prompt an unwind in rate-hike expectations and energy prices would fall, said Aaron Hill, chief market analyst at FP Markets.

A prolonged conflict, however, would keep energy prices elevated and heighten stagflation risk, with global growth risking "a sizeable hit," Hill said.

Write to Emese Bartha at emese.bartha@wsj.com

 -0- 
 

(MORE TO FOLLOW) Dow Jones Newswires

March 23, 2026 06:30 ET (10:30 GMT)