Slide in oil prices drives rebound in battered government bonds

Oil prices fell and government bonds rebounded on Monday, as investors bet that this week’s UN General Assembly in New York might bring diplomatic progress in the Middle East conflict and some relief to global debt markets.

Brent crude, the global oil benchmark, fell as much as 2.1 per cent to $101.19 a barrel, its lowest level since September 10. West Texas Intermediate, the US benchmark, dropped as much as 1.9 per cent to less than $98 a barrel.

Overnight, Mike Waltz, the US ambassador to the UN, said on X that the “door is open for Iran back to the negotiating table if they do so in good faith”.

On Sunday, a Fox News reporter said US President Donald Trump had told him he would “probably be open” to meeting Iranian President Masoud Pezeshkian on the sidelines of the UN General Assembly beginning on Tuesday.

The US “saying that negotiations remain on the table explains the drop [in oil]”, said Van Luu, global head of solutions strategy at Russell Investments.

The fall is nevertheless striking, given that Iran-backed Houthis had, over the weekend, escalated their attacks on Saudi Arabia, a US ally in the region, he added.

European government bonds, which were battered last week by high energy prices and fiscal concerns in France, regained ground, with France’s 10-year yield down 0.11 percentage points to 4.47 per cent. Yields fall when prices rise.

Italy’s 10-year yield fell 0.09 percentage points to 4.35 per cent, while 10-year gilt yields were 0.06 percentage points lower at 5.24 per cent.

“Our view remains that we are past the local peak in tensions [in the Middle East] and we should see some move towards normalisation in the coming weeks,” said Mohit Kumar at Jefferies.

“Our theory remains that the first couple of weeks of October could be a sweet spot for some sort of fudge between US and Iran,” he added.