Economies thrown into renewed turmoil as AI debt, Iran war and soaring government bond yields fuel alarm

At the height of the summer, the mood was optimistic in the world’s financial capitals. Powered by the AI revolution, the US stock market had rallied to a fresh all-time high, as investors bet the multitrillion-dollar investment spree would overshadow the hit from the Iran war.

Now the warning lights are flashing red. As the fighting in the Middle East intensifies without clear sign of a resolution, financial markets have been thrown into renewed turmoil. A slowdown looms in the AI arms race, and tinderbox conditions in the market for government debt are fuelling alarm.

Soaring oil prices of above $108 a barrel after Houthi attacks on Saudi infrastructure stoke inflation fears

US government borrowing costs have risen to 5% for the first time since 2023 as soaring oil prices fuelled by the war in the Middle East trigger an intensifying sell-off in the global bond market.

The yield – in effect the interest rate – on 10-year US Treasury bonds hit the psychologically important threshold on Monday, on a day of renewed selling pressure on Wall Street as the global oil price reached $108 a barrel.

As John Healey drafts his autumn budget, the US president’s policies continue to inflate debt servicing costs

Britain is not entirely in control of its own destiny, from the rising cost of the weekly shop, to the vaulting cost of government borrowing. What is said and done in Westminster matters. But the global backdrop is making life tough, not least in the deeds and words of one man: Donald Trump.

As John Healey drafts his plan for next month’s autumn budget, the perilous economic conditions the chancellor must navigate can be traced back to the door of the US president.