Oil Price Surge Triggers Global Market Sell-Off Amid Inflation Fears

Stock markets globally saw losses on Tuesday as bond yields soared to a 28-year high due to rising oil prices. The higher oil price, fueled by attacks on commercial ships in the Strait of Hormuz, sparked fears of increasing inflation and put pressure on global bond yields.

The FTSE 100 index fell 0.3% to close at 10,789.28, while the FTSE 250 dropped 1.7% to finish at 24,521.29. The AIM all-share closed down 1.9% at 796.06. European equities also suffered losses, with the CAC 40 in Paris down 0.4% and the DAX 40 in Frankfurt lower by 1.1%.

US interest rates were also impacted, with the yield on the 10-year Treasury rising to 4.77%, its highest level since 1998. In the UK, the yield on 10-year gilts reached an 18-year high of 5.22%.

Kathleen Brooks, research director at XTB, warned that the rise in bond yields poses a 'major challenge' for the Chancellor ahead of next month's Budget. She noted that every basis point increase in borrowing costs adds to debt servicing costs, which need to be paid by the public purse.