Crude oil prices settled at the highest in nearly four weeks, as investors worried about escalating tensions in the Middle East after the United Arab Emirates decided to suspend all financial and economic transactions with Iran, and as ship traffic through the Strait of Hormuz remained slow.
U.S. crude rose 0.77% to $85.59 a barrel and Brent rose to $91.42 per barrel, up 0.44% on the day.
Long-term borrowing costs from the U.S. to Germany and Japan have soared as investors grow increasingly anxious about ballooning government debt and elevated inflation, pressures compounded by the Iran conflict's impact on oil prices.
German and French long-dated bond yields, which had earlier risen to their highest in 15 and 18 years respectively, traded lower on the day.
"What we've seen in the course of recent days is that the long end of the bond market has obviously been selling off and potentially becoming somewhat problematic for the play through to other asset classes," Jeremy Stretch, head of G10 FX strategy at CIBC, said.
"Clearly, the Treasury Secretary has to be mindful of those risks and has made adjustments. That's why we are seeing U.S. 30-year Treasury yields down sharply and the dollar cheapening."
A rise in Japan's benchmark 10-year bond yield toward 3%, a three-decade high, is also a warning sign for global debt markets that for years have depended on low Japanese rates driving a constant flow of Japanese investment abroad.
Minutes from the Federal Reserve's July meeting released on Wednesday showed that concern about inflation deepened last month, with "several" policymakers ready to raise interest rates and "many" saying a hike in borrowing costs would be needed if inflation does not decline to the U.S. central bank's 2% target.
The central bank left rates on hold last month, but Chairman Kevin Warsh unsettled markets by offering few clues on how policymakers might respond to persistent inflation.
Since the meeting, traders have scaled back bets on a September rate hike, as benign inflation data and a soft July jobs report shifted expectations. Markets now price in a 31% chance of a September hike, rising to 65% by December.
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