WASHINGTON — Brent crude climbed above $95 a barrel and government bond yields rose across Europe after Japan, as the United States carried out an unusual daytime strike on Iran while New York markets were open. Rising sovereign yields, which feed directly into corporate bond and mortgage rates, are stoking concern about a chain reaction through the real economy for governments, companies and households. Finance chiefs gathered for the Group of 20 finance ministers' meeting, however, offered no clear remedy.
The U.S. Central Command said on X, formerly Twitter, that it had begun strikes on Islamic Revolutionary Guard Corps targets in Iran at noon Eastern time, describing the action as a response to recent Iranian attacks on civilian vessels in the Strait of Hormuz and on U.S. service members. Axios, citing sources, reported that U.S. forces also struck two Iranian government oil tankers.
Until now, the U.S. military had timed strikes on Iran for around 5 p.m., after the New York market close, to limit the impact on trading. It had also refrained from hitting Iranian tankers because of the risk of driving up oil prices, but targeted tankers for the first time in this round. President Donald Trump warned in a Fox News interview that the strikes had been very powerful and that Iran would be completely wiped out as a nation if another attack followed.
Iran retaliated immediately. The semi-official Tasnim news agency reported that a decisive operation by Iranian forces had begun in response to the United States. Axios reported that Iran fired ballistic missiles at a U.S. military base in Jordan. Meanwhile, Russia has been secretly helping Iran develop advanced supersonic cruise missiles, the Financial Times reported on the 1st.
Markets swung sharply. Brent crude futures settled 4.6% higher at $94.65 a barrel on the 1st and broke above $95 in intraday trading on the 2nd, according to Bloomberg. West Texas Intermediate futures jumped 5.2% to close at $90.22 a barrel on the 1st, clearing the $90 mark. WTI extended gains in Asian trading on the 2nd, surging to as high as $92. As oil rose, the probability of a U.S. rate increase in September implied by futures markets climbed to 68%. Trump summoned oil industry executives to the White House and pressed them to lower gasoline prices.
European sovereign bond markets also wobbled. France's 10-year yield rose to 4.206% on the 1st, the highest in 18 years since November 2008, while the British 10-year yield hit 5.219%, its highest since June 2008. Germany's 10-year yield stood at 3.341%, the highest in 15 years since April 2011. Concern is spreading in particular over France, where the budget deficit is expected to reach 5.2% of gross domestic product this year and where doubts persist about the government's ability to push through welfare spending cuts.
The G20 finance ministers' meeting, chaired by the United States, closed the same day having gone no further than flagging trade imbalances caused by excessive Chinese exports. The Wall Street Journal said the meeting showed no sign whatsoever that the fiscal deficits, inflation and geopolitical turmoil unsettling investors were coming to an end. The volatility was amplified by the growing influence of private investors such as hedge funds, which are sensitive to yields and risk, whereas official institutions including central banks once underpinned markets.
With government debt in the United States, Europe and Japan already exceeding the size of their economies, rising sovereign yields increase governments' interest burden. U.S. companies, including Big Tech, have already issued $1.5 trillion of corporate bonds this year, and higher market rates worsen their funding conditions, weighing on further investment and hiring. Rising mortgage rates also feed into a slump in consumer spending, a potentially fatal development for Trump ahead of November's midterm elections.
