Closing summary
Government borrowing costs in several advanced economies continued to rise to levels not seen in decades on Tuesday, as hopes of an end to the US-Iran war faded.
Concerns about the inflation outlook worsened after the ceasefire between Washington DC and Tehran ended on Monday night without an agreement, with no progress on the reopening of the strait of Hormuz.
Donald Trump’s threat to bomb Oman if they “get in the way” of negotiations helped to push oil higher on Tuesday, to above $91 a barrel, and investors fear higher energy prices will push inflation up, leading to higher interest rates. Brent is currently trading 0.6% higher at $91.47 a barrel.
Fiscal pressures are also rising as governments ramp up defence spending, which is expected to drive borrowing higher in leading European countries such as Germany and the UK.
US government bond yields rose for a third session, as fears over the US-Iran conflict and inflation converged with a global bond selloff.
The US 30-year Treasury yield rose to 5.3%, its highest level since 2007, while the benchmark 10-year yield, which has been climbing since the start of the Iran conflict, touched its highest point since early 2025 at 4.74% and is pushing towards 4.75%.
US industrial production cooled by a tenth of a percentage point to 0.2%, undershooting economists’ expectations in part due to a decline in production of consumer goods.
Will Compernolle, macro strategist at FHN Financial in Chicago, told Reuters that US yields are partly drifting higher in light summer trading volumes because this week is light on economic data and there are no public remarks from US central bank policymakers, leaving Middle East tensions to set the direction. The collapse of the memorandum of understanding reached by Washington and Tehran in June showed that the energy shock is likely to persist, he added.
I think that’s weighing on bonds because we’re living in this world where we’re going to have supply shock after supply shock.
He added that government bonds are also competing with capital attracted to the soaring capital expenditures for artificial intelligence.
Wage growth in the UK slowed in June and vacancies hit a five-year low as workers came under pressure from a renewed cost of living squeeze amid the economic impact from the Iran war.
Figures from the Office for National Statistics show average growth in total earnings, including bonuses, fell to 4.1% in the three months to June, down from 4.4% in the three months to May.
The pay slowdown could deter the Bank of England from raising interest rates this year, some economists suggested.
Liz McKeown, the ONS director of economic statistics, said the data showed “some softening” in the jobs market despite a broadly unchanged picture overall, in a potential sign of stabilisation after a sharper slowdown earlier this year.
Regular wage growth has remained broadly stable in recent months. However, private sector pay growth has continued to ease, while public sector pay growth remains elevated due to the timing of the latest NHS pay awards.
Our other main stories:
Thank you for reading. We’ll be back tomorrow. Bye! – JK
ShareUpdated at 11.10 EDT