Bond Market Sees Red as Oil Prices Surge and Strait of Hormuz Threat Looms

The global bond market is experiencing a sell-off, pushing sovereign borrowing costs to levels not seen since before the financial crisis. The average yield on the Bloomberg Global Treasury Index has climbed to 3.68 per cent, its highest since 2008. This increase in interest rates is largely due to concerns over oil prices, which have risen rapidly following the breakdown of the ceasefire between Iranian and US forces in the region.

The price of oil hit $100 a barrel for the first time since May, with a further 7.4% rise after Houthis announced an attack on two Saudi Arabian tankers in the Red Sea. This has prompted fears that Yemen's Iran-aligned Houthi group may close the Bab al-Mandab Strait, which carries around 6% of global oil flows.

The UK is not immune to these market fluctuations, with gilt yields recording their longest streak of daily closes above 5 per cent in almost two decades. The Bank of England warned that energy markets could come under renewed strain, limiting the scope for previous mitigants such as releasing countries' strategic oil reserves.