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.

On Tuesday, the 10-year treasury rate yield reached a 19-year high at 5.041% as investors are wary Iran war fallout

Scott Bessent, the US treasury secretary, claimed the government’s massive buyback of US bonds was a success.

The claim came as the 10-year treasury yield reached a 19-year high on Tuesday, increasing pressure on interest rates as the Federal Reserve weighs another hike to see off rising inflation.

Iran war and turbulent global bond markets add to pressure as rate decisions loom this week in major western economies

• Economics viewpoint: perilous UK economic conditions trace back to Trump

Central bankers in economies including the US, Japan and the UK will face a moment of truth this week, as surging inflation raises the prospect of higher interest rates.

Policymakers in all three countries will set rates in the next seven days against the backdrop of turbulent global bond markets.

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.

Crude jumps above $107 a barrel amid concerns over Middle East conflict and out-of-control government borrowing

Nervous investors across big economies have been dumping government bonds, driving up the cost of borrowing, as surging oil prices amplified fears about rising inflation.

The cost of a barrel of oil jumped 6% to above $107 on Thursday amid concerns that advances by Houthi rebels along the Red Sea coast in Yemen could choke off Saudi crude exports.

Concerns over rising inflation, continuing war with Iran, and the US’s record national debt have shaken the market

Americans who have been grappling with the higher cost of living over the last few years now face another issue: trouble in the US bond market that could mean elevated costs are here to stay.

US government bonds – known as treasuries – are supposed to be the most stable type of investment vehicle. But investor concerns over issues including rising inflation, the continuing war with Iran, and the US’s record national debt have shaken the market and slowed demand for US treasury bonds.

Scott Bessent made announcement on Wednesday as bond yields rose to highest point since 2008 financial crisis

The US treasury moved to cut the cost of borrowing on Wednesday only to be swiftly rebuffed by the bond market.

Scott Bessent, the treasury secretary, announced the US would buy back $6bn worth of government debt – treasuries – in an effort to alleviate a selloff in the US bond market that has put pressure on interest rates.