Bonds face renewed selling as oil rises, stocks cautious

World stocks were in a cautious mood on the last trading day of August

Borrowing costs in the euro area ‌and ​Japan hit their highest levels in years on Monday, as a 3% jump in oil prices as Iran-U.S. strikes added to angst about inflation that could keep central banks in rate-hike mode. World stocks were in a cautious mood on the last trading day of August.

A jump in Brent crude to just over $92 a barrel followed a U.S. attack on an Iranian island in the Strait of Hormuz. Tehran retaliated to the attacks by striking U.S. forces. That kept alive the risk of further interest rate hikes from some central banks.

We have brought forward the start of the Fed’s tightening cycle and now expect a September interest rate increase, said Kristina ‌Clifton, a senior economist at Commonwealth Bank of Australia.

Japan’s 2-year government bond yield rose to a 31-year high, while German and French 2-year bond yields jumped to their highest levels since 2024.

Chinese blue chips recovered from early ⁠losses, although property developers remained under pressure after Beijing announced regulatory changes. The official manufacturing purchasing managers’ index rose to 49.8 in August from 49.2 in July, though services remained subdued.

Japanese bonds followed Friday’s selloff in Treasuries as 10-year yields again hit ⁠their highest since 1996. Two-year Treasury yields held at 4.34%, after jumping ⁠almost 12 basis points on Friday. Yields on 30-year bonds were more contained at 5.20%.

As the European session gathered momentum, ‌longer-dated yields in the euro area hit their highest in over 15 years, continuing the trend of recent weeks. The European Central Bank is widely expected to hike rates when it meets on September 9-10.

Europe’s STOXX 600 index slipped 0.2%, with trading volumes reduced by a UK public holiday. U.S. stock futures nudged lower amid the European session. In Asia, Nikkei slid 0.1%, while MSCI’s world stock index was marginally lower.

Inflation concerns are expected to prompt New Zealand’s central bank to hike rates for a second straight meeting on Wednesday, while the Bank of Canada is expected to stay on hold amid concerns about the economic impact of a trade dispute with the U.S.

The euro was a shade firmer at $1.1596. Euro zone inflation data this week is expected to cement market pricing for a September rate hike from the European Central Bank.