Global bond sell-off resumes as oil rises above $107 and borrowing costs climb

Oil shock reaches sovereign-debt markets

Government bonds sold off across several major economies on September 10 as investors confronted a renewed rise in energy prices and the prospect that inflation will remain elevated. The Guardian reported that crude climbed about 6% to more than $107 a barrel, while yields on British, American, German and Japanese debt moved higher. The immediate catalyst was concern that the Houthi advance along Yemen's Red Sea coastline could threaten routes used for Saudi oil exports, adding another supply risk to the continuing Iran conflict.

The movement matters because bond yields determine the marginal cost at which governments refinance debt and fund new programmes. In Britain, the yield on the benchmark 10-year gilt rose above 5.37%, its highest level since 2007. That creates a more difficult backdrop for the government's October budget: higher debt-service costs reduce the room available for infrastructure, household support or other spending without tax increases or additional borrowing.

Central banks face renewed inflation pressure

The European Central Bank supplied an important policy signal on the same day. Its Governing Council increased all three official rates by 25 basis points, taking the deposit rate to 2.50%, the main refinancing rate to 2.65% and the marginal lending rate to 2.90%, effective September 16. The ECB directly identified the Middle East conflict as a source of inflation pressure and projected headline euro-area inflation averaging 3.0% in 2026.

The sell-off also pushed the US 10-year Treasury yield to about 4.92%, while longer-dated American borrowing costs reached levels last recorded in 2007. An official effort to buy back $6 billion of US government debt did not reverse the broader move described by The Guardian. Investors were instead weighing whether expensive energy and loose fiscal policy would compel central banks to keep monetary conditions restrictive for longer.

What to watch

The next tests are whether oil remains above $100, whether Red Sea shipping or Saudi export routes suffer an actual disruption, and how the Federal Reserve and Bank of England respond at their forthcoming meetings. A sustained rise in yields would transmit the geopolitical shock beyond fuel prices, raising mortgage, business-investment and government-financing costs. A retreat in oil or a reduction in regional tensions could provide relief, but the ECB decision shows that policymakers are already treating the inflation shock as more persistent than previously expected.