Global government bond markets experienced a renewed sell-off Thursday, driven by crude oil surging 6 percent above $107 a barrel on concerns that Houthi advances along Yemen's Red Sea coast could disrupt Saudi crude exports. The move reflects a market reassessment: inflation pressures are structural, not transitory, and central banks face a longer tightening cycle.
The European Central Bank raised its main rate to 2.5 percent Thursday. ECB President Christine Lagarde said the bank now expects inflation to be "longer lasting than we had anticipated" and flagged Middle East conflict as a persistent inflation driver, with price growth projected to remain above target for an extended period.
UK gilt yields tell the story most clearly. Ten-year borrowing costs hit 5.37 percent—the highest since 2007—compressing fiscal space ahead of Chancellor John Healey's budget on Oct. 28. Higher sovereign debt servicing costs will reduce the Treasury's headroom for investment and consumer support as energy bills rise. Unleaded petrol prices have climbed 6 pence per liter since early September, according to the RAC. Banks have already begun raising mortgage rates in response to higher long-term yields.
Across the Atlantic, the sell-off mirrored the European move. U.S. 10-year yields climbed to 4.92 percent Thursday—their highest since 2023—while 30-year yields hit their highest level since 2007. The synchronization across sovereign curves reflects a global repricing: markets are pricing in persistent central bank tightness and elevated oil-driven inflation rather than a near-term policy pivot.
President Donald Trump commented Wednesday that the Middle East conflict could persist through November's elections, after which he predicted oil prices would fall. Trump has also pledged a $5,000 check to every adult U.S. citizen if Republicans win the midterms.
