A look at the day ahead in European and global markets

By Gregor Stuart Hunter, Asia Finance & Markets Breaking News Correspondent

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Bond yields are hitting new milestones as fighting resumes between the U.S. and Iran and oil prices surge, sending Brent crude above $95 and the yield on the U.S. 10-year Treasury bond ‌to a three-year high.

That's after the U.S. and Iran resumed attacks on each other on Tuesday, with the Pentagon saying it completed a wave of strikes against Islamic Revolutionary Guard Corps targets, and Tehran saying in turn it struck U.S. assets in Jordan and Iraq. It was the first serious exchange of fire since July.

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, September 1, 2026. REUTERS/Staff

The resumption of the Middle East conflict pushed the yield on ⁠the U.S. 10-year Treasury bond to an intraday high of 4.8122%, its highest level in almost three years, while the 10-year Japanese government bond yield extended a surge that has already taken it to levels not seen in three decades this week.

For bond investors, it's another headache on top of already mounting fiscal concerns. So-called bond vigilantes have been demanding ever-higher compensation to fund governments running large deficits, and a renewed oil shock only adds fuel to the inflation fire, undermining the appeal of fixed-income assets.

There is another wrinkle, too. Rising yields in Japan could keep more Japanese money at home, reducing a powerful source ‌of overseas ⁠bond demand that has long helped anchor global debt markets.

Graphics are produced by Reuters

Adding to pressure on bond markets were comments from Bank of Japan officials ahead of the September 17-18 meeting, with Governor Kazuo Ueda vowing to continue raising rates. Hajime Takata, another board member known for his hawkish views, also called for a faster pace of interest rate hikes.

Meanwhile, other central ⁠banks took action on Wednesday to tame cost-of-living pressures. The New Zealand dollar slumped 1% to $0.58375 after a widely-expected 25-basis-point rate hike from the Reserve Bank of New Zealand was coupled with a more dovish statement.

Equities have taken fright ⁠as financial conditions tighten, with MSCI's broadest index of Asia-Pacific shares outside Japan tumbling 1.7% as South Korea's KOSPI skidded more than 3.5%. The Nikkei 225 was down 2.7% while S&P 500 e-mini futures edged ⁠0.1% lower.