Oil surge and bond yields near multi-decade highs leave global markets on edge

Wall Street managed a narrow escape on Thursday, October 1, closing modestly higher after Treasury yields pulled back from fresh multi-decade peaks — but the relief was thin. Oil prices kept climbing, inflation fears refused to fade, and Asian markets slid the following morning as investors braced for the US jobs report that could determine whether the Federal Reserve raises rates again.

Xinhua reported that the S&P 500 rose 14.91 points, or 0.19 percent, ending the session at 7,666.45. The Dow Jones Industrial Average crept higher by 20.51 points, or 0.04 percent, to reach 50,926.56, while the Nasdaq Composite edged up 10.53 points, or 0.04 percent, to 26,871.6. Of the eleven primary S&P 500 sectors, six finished in the red, with healthcare and communication services posting declines exceeding 1 percent each. Energy and industrials led the advancers, rising 1.92 percent and 1 percent respectively.

The session's fragile gains rested heavily on a retreat in Treasury yields from intraday extremes. The benchmark 10-year US Treasury yield spiked as high as 5.34 percent during trading before easing to 5.26–5.24 percent at the close — still at levels last seen in 2007, before the financial crisis. The 30-year Treasury yield, which touched 5.58 percent, is back to where it was in 2004, according to the AP.

Yields and prices on bonds move in inverse fashion. When yields rise sharply, borrowing costs increase across the economy — for mortgages, corporate loans, and government debt — and higher yields also make bonds more attractive relative to stocks, putting downward pressure on equity prices.

The bond market's third-quarter sell-off was sweeping. According to CNBC, 10-year Treasury note yields reached their loftiest point since 2007, while 30-year yields climbed to levels not seen since 2002. Bonds issued by Japan, Germany, the UK, and France also hit multi-decade highs over the same period, as a lack of diplomatic progress on ending the Iran war fueled bets on higher inflation and further interest rate increases.

Driving much of that pressure: oil. On October 1, West Texas Intermediate crude for November delivery settled at $92.87 a barrel, a gain of $2.45, or 2.71 percent. According to Xinhua, Brent crude for December delivery closed at $102.31 a barrel, up $4.28, or 4.37 percent. For the full third quarter, CNBC reported that front-month Brent futures surged 42 percent to reach $103.53 per barrel — the contracts' third-largest quarterly gain over the past decade, trailing only the first quarter of this year, when the Iran war erupted, and the peak of the Covid-19 pandemic in 2020.

The root cause is the Strait of Hormuz. The United States and Israel attacked Iran in late February, and the strait — through which Middle Eastern oil reaches customers worldwide — has remained blocked since. A barrel of Brent now costs far more than the roughly $72 it did before the conflict began, according to the AP. AAA data cited by the AP showed that the average US price for a gallon of regular gasoline has climbed to nearly $4.48, up from $3.13 a year earlier.

Over the weekend before Monday's selloff, President Donald Trump said he was rejecting an Iranian offer to reopen the strait and resume nuclear talks.

I'd like to make a deal, too. But that deal would not be acceptable.— Donald Trump, US President

That rejection sent Brent above $101 per barrel on Monday morning before US officials said mediators were still working with both sides, trimming some of the day's gains. The S&P 500 fell 0.8 percent that Monday, the Dow dropped 372 points, or 0.7 percent, and the Nasdaq fell 1 percent, according to the AP. Airlines bore some of the sharpest losses: American Airlines fell 3.8 percent and United Airlines lost 3.6 percent.

Analysts at TD Cowen, in a September 28 note cited by CNBC, cautioned that the range of outcomes for crude oil remains unusually wide.

We continue to believe the range of outcomes for this commodity are wider and more difficult to predict than others. Once the conflict ends, and assuming normalized demand, the balances will be determined by if countries pump at prewar levels or max capacity … plus China buying patterns and Iran ability to sell into the market.— TD Cowen analysts

The Federal Reserve is caught in the middle. Speaking on Thursday, Fed Vice Chair Philip Jefferson indicated that policymakers may require additional time before determining whether another rate increase is warranted. According to CME FedWatch data cited by Xinhua, markets are assigning roughly a 28 percent probability to a quarter-point rate hike at the Fed's October meeting. BlackRock strategists, in their weekly commentary, pushed back on the idea that the market's rate-hike expectations are fully warranted.

The global bond selloff accelerated last week, pushing long-dated U.S. Treasury yields to their highest levels in over 20 years … on expectations for further rate hikes. We think markets may be getting ahead of themselves. A hike that strengthens Fed credibility, against a backdrop of stronger growth, is in our view on net good news for risk assets.— BlackRock strategists

On the labor market, data showing that initial state unemployment benefit filings fell for the fourth week in a row, combined with a Challenger, Gray & Christmas report that planned corporate layoffs declined in September, pointed to what Xinhua described as a persistent "low hire, low fire" employment landscape. Friday's nonfarm payrolls report was the next major data point markets were watching.

Corporate earnings provided some bright spots. Accenture soared nearly 16 percent after its fiscal fourth-quarter results and fiscal 2027 earnings guidance beat analyst expectations. Semiconductor maker Micron Technology jumped more than 3 percent after reporting quarterly revenue that rose nearly fourfold year on year, according to Xinhua. Nvidia, despite a broader Monday selloff, gained 2 percent after announcing a stock buyback plan with a total remaining size of $235 billion, according to the AP.

Scrutiny over AI financing also intensified. According to a Reuters report cited by Xinhua, Broadcom has committed to lending AI startup Anthropic as much as $42 billion to cover infrastructure costs, with Anthropic on track to become Broadcom's largest compute customer within the coming year. Separately, AI and tech stocks faced pressure in September after prominent figures including Anthropic chief Dario Amodei and OpenAI CEO Sam Altman called for slowing the pace of AI development to allow safety measures to catch up, according to CNBC.

For the full third quarter, Wall Street's performance was mixed. The S&P 500 added 2.03 percent, the Nasdaq rose 2.2 percent, and the Dow fell 1.9 percent, according to CNBC. The average change across the three indexes was just 0.6 percent — a marked slowdown from the double-digit gains of the prior quarter. Outside the US, South Korea's Kospi fell 19.3 percent, mainland China's CSI 300 shed 12.5 percent, and major European indexes posted marginal gains.

Despite the headwinds, some institutional investors remain constructive. In a Monday note, UBS Global Wealth Management Chief Investment Officer Mark Haefele indicated that his team maintains a positive view on equities.

Investors should consider combining a broadly diversified core equity allocation with targeted exposure to transformational innovation and cyclical opportunities, while reducing excessive dependence on individual stocks or a narrow group of technology companies. We continue to favor AI, power and resources, and longevity, and recommend broad exposure across sectors and regions.— Mark Haefele, Chief Investment Officer, UBS Global Wealth Management

The US dollar index ended the quarter at around 101.451, a 3 percent year-to-date rise, according to CNBC — a partial recovery after the dollar shed around 9 percent over the course of 2025 amid a broad de-dollarization trend tied to concerns over Trump's tariffs regime.

Why it matters — With the Strait of Hormuz still blocked, oil above $100 a barrel, and Treasury yields at multi-decade highs, every American faces higher gas prices, costlier mortgages, and a Federal Reserve that may not be done raising rates — and Friday's jobs report could tip the balance.

Reported by reuters.com, english.news.cn, cnbc.com, durangoherald.com, investing.com