US long-term borrowing costs surged to their highest level in nearly two decades on Thursday, as a jump in oil prices and the latest evidence of stubbornly high inflation reignited a global bond sell-off.
The 30-year US bond yield jumped as much as 0.06 percentage points to 5.35 per cent, its highest level since 2007, a day after Treasury secretary Scott Bessent’s $6 billion (€5.1 billion) buyback plan received a frosty reception from investors.
Later on Wednesday, President Donald Trump pledged to issue a $5,000 “dividend” to every US citizen if Republicans retain control of Congress in the midterm elections – a move estimated to cost more than $1 trillion.
“Bonds are facing a double whammy – oil prices are creeping higher, while US buy-backs and growing credibility risks are pushing term premia higher,” said Pooja Kumra, a rates strategist at TD Securities.
A $22 billion auction of 30-year Treasuries later on Thursday will be closely watched for signs of investors’ appetite for US government debt.
Yields also climbed sharply in Europe after Houthi rebels seized a key Yemeni port and a slump in Saudi crude production added fresh impetus to a rally in oil prices, in the latest sign that the escalating conflict in the Middle East continues to disrupt global energy supplies and stoke inflationary pressures.
Mortgages in the firing line as ECB increases interest rates by 0.25 percentage points
In the UK, benchmark 10-year borrowing costs also jumped to their highest level since 2007, with the yield rising 0.11 percentage points to 5.38 per cent.
German 10-year yields climbed 0.05 percentage points to 3.49 per cent, a post-2011 high.
The bond sell-off came as the European Central Bank raised interest rates to 2.5 per cent on Thursday, warning that inflation in the euro zone is expected to “remain well above” the 2 per cent target for “an extended period” as the Iran war keeps energy prices high.
The price of Brent crude, the international oil benchmark, was up 4.3 per cent by late afternoon at $105.57 a barrel. West Texas Intermediate, the US benchmark, was up by a similar margin and rose above $100 a barrel for the first time since May.
Saudi Arabia told the Organisation of the Petroleum Exporting Countries (Opec) it produced 6.2 million barrels a day in August, the lowest monthly figure in 2026 and 23 per cent lower than in July, according to a report from the oil cartel on Thursday.
Underlining the price pressures in the US, data released on Thursday showed wholesale inflation ticked higher in August as resurgent fuel costs made it more expensive to ship goods across the country.
The Bureau of Labor Statistics’ Producer Price Index rose to a year-on-year rate of 5.4 per cent, from 4.7 per cent a month earlier, a larger increase than Wall Street analysts had anticipated.
This week Trump conceded that oil prices would stay elevated at least until the midterm elections.
“I think it’s going to take a little bit longer than the midterm [elections],” the US president said on Wednesday as crude prices surged past $100 a barrel following the latest escalation of hostilities in the Middle East.
Trump said oil prices would then come “tumbling downward” even though analysts are speedily ratcheting up 2026 and 2027 oil price forecasts amid few signs the US and Iran are prepared to agree a peace deal.
S&P Global Energy said on Thursday that oil markets were “settling into a new normal” of higher prices as the prospects for a definitive resolution to the Iran conflict dimmed. For the first time since the US-Iran war started, the research group said it did not project Middle Eastern crude oil production to return to pre-war levels by the end of 2027.
“The market is not returning to calm, it is adjusting to the new normal defined by unresolved conflict and persistent maritime risk – one where oil flows stay below pre-war levels and the path forward remains uneven,” said Jim Burkhard, vice-president and global head of crude oil research, S&P Global Energy.
Stocks sank in tandem with bonds. On Wall Street, the S&P 500 fell 0.5 per cent and the Nasdaq 100 dropped 0.8 per cent. The Stoxx Europe 600 lost 0.6 per cent. – Copyright The Financial Times Limited 2026