Oil Rally Pushes Bond Yields to Highest Since 2008

The yield on the Bloomberg Global Aggregate government bond index rose on Tuesday, September 1, for a fourth consecutive day, reaching 3.72 percent, its highest level since mid 2008. Behind the number sits a jump in oil prices that has revived inflation fears, and investors are now betting that central banks will need to keep interest rates higher for longer than expected just weeks ago.

The bond selloff began last week after Federal Reserve Chair Kevin Warsh repeated that the institution remains committed to bringing inflation down. Pressure built further after a fresh flare up in the Middle East: Brent crude jumped to $91.64 a barrel when a tanker was struck off the coast of Oman. That rally continued into Tuesday.

How much US yields have risen

The yield on the US 10 year Treasury note, the benchmark rate for mortgages, auto loans and credit cards, rose three basis points to 4.788 percent, its highest since January 14, 2025. The two year note, which tracks expectations for the Federal Reserve’s short term decisions, climbed to 4.362 percent, up a little more than one basis point.

The 30 year Treasury bond, the maturity most sensitive to geopolitics, rose more than two basis points to 5.272 percent. Bloomberg Adria reported that 30 year Treasuries are on their worst run since 2006, while the combined pressure from oil prices and rising yields is spilling into equities as well: the Nasdaq 100 fell under the double blow of higher energy costs and climbing yields.

What’s happening in Japan and the UK

The yield on the 10 year Japanese government bond broke above three percent for the first time since 1996, rising six basis points. The dollar is trading at 160.1 yen, a third straight day above the 160 level that some traders view as a possible threshold for currency market intervention.

In Europe, the UK’s 30 year gilt climbed to 5.88 percent, up nine basis points to its highest level since March 1998. That means costlier borrowing for the government at a moment when both energy prices and bond yields are already under pressure.

Ulrike Hofmann-Burkhardt, UBS’s chief investment officer for the Americas, said the volatility is unlikely to ease soon.

“Volatility in yields will likely continue in the near term,” Hofmann-Burkhardt said in a note to markets.

Oil is setting the pace again

West Texas Intermediate crude rose 1.9 percent, above $87 a barrel, while Brent gained 1.7 percent to $92.1. The rise in energy prices remains the main trigger behind the latest wave, but it isn’t the only one: alongside government debt loads, spending on artificial intelligence infrastructure is also pushing yields higher. According to figures cited by Biznis.rs, AI companies plan to borrow roughly $500 billion this year to build data centers, more than three times the roughly $160 billion the UK government is set to borrow this year. Rising demand for capital on both the private and public side is pushing yields up at the same time, and neither factor looks temporary.

The rise in borrowing costs isn’t limited to bonds already in circulation. Germany’s inflation is projected at three percent for 2027, a sign that the price pressure isn’t being treated as a short lived consequence of events in the Middle East but as a shift in the outlook for years ahead.

What investors are watching this week

Markets are also watching this week’s G20 finance ministers meeting in Asheville, North Carolina, along with a string of US economic indicators: the purchasing managers’ index, job openings data and labor turnover figures. The nonfarm payrolls report is due Friday, and its outcome will show whether the bond selloff gains further momentum or whether the pace of rising yields starts to ease.

For now, the combination of costlier oil, heavy debt loads across developed economies and surging investment in artificial intelligence is keeping government bond yields at levels markets haven’t seen in nearly two decades.