US borrowing costs hit 5% for first time since 2023 amid bond sell-off

The US 10-year Treasury yield is used in global financial markets as a benchmark for pricing other assets. Photograph: Jim Lo Scalzo/EPAView image in fullscreenThe US 10-year Treasury yield is used in global financial markets as a benchmark for pricing other assets. Photograph: Jim Lo Scalzo/EPAUS economyUS borrowing costs hit 5% for first time since 2023 amid bond sell-offSoaring 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.

With traders awaiting a crunch US Federal Reserve interest rate decision on Wednesday, the benchmark rate has steadily climbed from a low this year of 4% before the outbreak of the US-Israeli war on Iran in late February. The yield was last above 5% in October 2023.

It comes as the rising global oil price stokes inflation fears, with the latest move prompted by a series of drone attacks that have forced Saudi Arabia to close a vital east-west crude pipeline as the fallout from the war mounts.

Brent crude, the international benchmark for oil prices, surged to more than $108.5 a barrel on Monday – a 3.7% increase on the day.

The spike came after Yemen’s Iran-aligned Houthi forces launched several attacks against Saudi Arabia and captured the strategic island of Perim in the Bab al-Mandab strait on Sunday, expanding their control of the waterway.

The rise was also fuelled by the Gulf states postponing a meeting with Tehran to discuss creating a temporary shipping lane through the strait of Hormuz, a vital channel through which a fifth of the world’s oil and gas supply normally passes.

Traders in the kingdom have warned it will run out of oil stocks for export if it does not reopen the east-west pipeline within days.

Gas prices also climbed higher on Monday, with the UK benchmark rising by 5% to 208.73p a therm – its highest level since December 2022.

It came despite Donald Trump on Monday announcing a deal between Ukraine and Russia not to hit each other’s energy targets, while insisting that he believed a politically sensitive rise in US diesel fuel prices was being driven by the conflict in Europe rather than the war in Iran.

With fears mounting as the Middle East war escalates, bond markets have come under intense selling pressure. The US 10-year Treasury yield is used in global financial markets as a benchmark for pricing other assets, meaning a jump in borrowing costs for Washington has consequences for countries, businesses and households worldwide.