Global Bonds Tumble as Oil Surge Fuels Rate Hike Bets

Intensifying U.S.-Israeli conflict with Iran pushes oil prices toward $120, stoking inflation fears and expectations of tighter monetary policy

Published on Mar. 9, 2026

Got story updates? Submit your updates here. ›

Global bond markets plunged on Monday as an escalating U.S.-Israeli war with Iran drove oil prices briefly toward $120 per barrel, heightening inflation concerns and fueling expectations that European central banks could tighten policy later this year. The bond selloff was exacerbated by investors unwinding previous bets on central bank rate cuts, with the market now pricing in around 30 basis points in rate hikes from the European Central Bank by the end of 2023.

Why it matters

The surge in oil prices, driven by the disruption of supply through the Strait of Hormuz, has raised fears of prolonged inflationary pressures that could force central banks to maintain or even raise interest rates, potentially dampening economic growth. This 'stagflation' scenario is worrying investors and policymakers alike.

The details

The U.S.-Israeli conflict with Iran has effectively shut down the Strait of Hormuz, through which roughly one-fifth of the world's oil and liquefied natural gas typically passes. This supply disruption, combined with the news that Iran's hardline leadership is set to continue, pushed Brent crude prices as high as $120 per barrel on Monday before they settled around $97. The bond market selloff was exacerbated by investors unwinding previous bets on central bank rate cuts, with the market now pricing in around 30 basis points in rate hikes from the European Central Bank by the end of 2023. In the U.S., expectations for Federal Reserve rate cuts have been reduced to just one 25-basis point reduction this year or none at all until 2027.

  • On Monday, Brent crude prices soared to almost $120 per barrel - their highest since July 2022.
  • Last Friday, a market gauge of U.S. two-year breakeven inflation rate touched a one-month peak.

The players

Brent Crude

The global benchmark for oil prices, which briefly reached $120 per barrel on Monday before settling around $97.

Strait of Hormuz

A strategic waterway through which roughly one-fifth of the world's oil and liquefied natural gas typically passes, which has been effectively shut down by the U.S.-Israeli conflict with Iran.

Mojtaba Khamenei

The designated successor to Iran's current supreme leader, Ali Khamenei, signaling that hardliners remain firmly in charge in Iran.

Chip Hughey

Managing director of fixed income at Truist Wealth in Richmond, Virginia.

Kaspar Hense

Portfolio manager at RBC BlueBay Asset Management.

Got photos? Submit your photos here. ›

What they’re saying

“If we're seeing inflationary pressures building with oil prices going higher, there's a potential that it constrains what global central banks can do for those looking to ease rates.”

— Chip Hughey, Managing director of fixed income at Truist Wealth (Reuters)

“We would think that European growth will be hit to the same extent as inflation is rising... With that, we would think that it is more likely that the ECB looks through.”

— Kaspar Hense, Portfolio manager at RBC BlueBay Asset Management (Reuters)

What’s next

Governments in Asia are scrambling to limit the impact of rising energy prices on their economies and consumers, while the European Union is examining short-term measures to ease pressure on industry.

The takeaway

The bond market selloff and surging oil prices have raised concerns about a potential 'stagflation' scenario, where high inflation and weak economic growth constrain the ability of central banks to provide stimulus. This could have far-reaching implications for consumers, businesses, and policymakers in the months ahead.