Bond sell-off heats up as oil prices continue to rise

A heavy sell-off in U.S. government bonds is gaining momentum with anxiety about persistent inflation driving prices lower.

The yield on the two-year Treasury, which closely tracks expectations about Fed moves, rose to 4.35%, on Tuesday. That’s up significantly from about 3.50% at the beginning of 2026. Meanwhile, the yield on the 10-year Treasury rose to 4.79% from 4.73% late Friday. That’s the highest it has been since January 2025.

The bond sell-off is global, with other nations facing the same economic pressures.

Japan’s 10-year bond yield touched 3%, a level it hasn’t hit since 1996. In Germany, the 10-year bond yield also rose to 3%, a 15-year high.

The U.S. debt surpassed $40 trillion two weeks ago, a shocking milestone as defense costs and interest on the burgeoning deficit make up an enormous share of federal spending. But investors are asking governments across the globe to pay more, with the perceived risk rising.

Futures for the S&P 500 index fell 0.6%, while the Dow Jones Industrial Average declined 0.8%. Nasdaq futures tumbled 1%.

The U.S. attacked rocket launchers on an Iranian island on Sunday, saying they were preparing to launch mines into the Strait of Hormuz. Meanwhile, the United Arab Emirates said it intercepted an Iranian drone over its waters on Monday.

September is off to a tepid start, a day after Wall Street closed out August on a downbeat note. The S&P 500, Dow Jones Industrial Average and the Nasdaq composite all declined on Monday. And the losses were broad, with nearly every sector within the benchmark S&P 500 finishing in the red.

Tech stocks are also back in focus, with shares of Nvidia, Microsoft, Alphabet and Micron Technology all declining before the market open.

Oil prices remain high as the Iran war has curtailed traffic in the Strait of Hormuz, which once accounted for about 20% of the world’s oil shipments.

Brent crude gained 1.7% to $92 per barrel on Tuesday, following a 2.7% rise on Monday. U.S. benchmark crude climbed 2.2% to $87.67 per barrel.

The national average for gasoline in August has been above $4 per gallon every day of the month for the first time ever, according to the AAA. It has been the most expensive August at the pump on record, outpacing even the enormous supply chain crunch during the COVID-19 pandemic in 2022.

Higher energy prices have fueled already elevated inflation, which remains well above the Federal Reserve’s 2% target. Many experts are expecting a rate hike soon after Fed Chair Kevin Warsh — in a speech last week at a conference of central bankers — left the door open to it if inflation didn't improve.

The government’s next report on prices comes out just days before the Fed meeting and could play an outsize role in determining whether the central bank acts.

Also this week, the government issues its latest monthly jobs report, which could also play into the Fed's decision on interest rates.

Thought the unemployment rate remains low at 4.1%, the job market stalled unexpectedly last month as inflation continues to squeeze businesses and households.

A weakening employment market could create a tough situation for Federal Reserve, which has to balance fighting inflation with supporting full employment. Its main tool for managing that “dual mandate” remains interest rates. Raising its benchmark rate to bring down inflation could further damage the jobs market; cutting its benchmark interest rate to help support employment can exacerbate inflation.

In Europe, Germany's DAX lost 1%, while the CAC 40 in Paris gave up 0.4% and Britain's FTSE 100 declined 1%.

Asian markets were mostly lower, with shares in online fast-fashion retailer Shein sliding as much as 10% after they began trading in Hong Kong on Tuesday. They closed 4% lower.

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AP Business Writers Michelle Chapman and Matt Ott contributed to this report.

Options trader Anthony Spina works on the floor of the New York Stock Exchange, Thursday, Aug. 27, 2026, in New York. (AP Photo/Yuki Iwamura)

Options trader Anthony Spina works on the floor of the New York Stock Exchange, Thursday, Aug. 27, 2026, in New York. (AP Photo/Yuki Iwamura)

A person walks in front of an electronic stock board showing Japan's Nikkei index at a securities firm Monday, Aug. 31, 2026, in Tokyo. (AP Photo/Eugene Hoshiko)

Currency traders watch monitors near a screen showing the Korea Composite Stock Price Index (KOSPI) and the foreign exchange rate between U.S. dollar and South Korean won at the foreign exchange dealing room of the Hana Bank headquarters in Seoul, South Korea, Tuesday, Sept. 1, 2026. (AP Photo/Ahn Young-joon)

Currency traders watch monitors at the foreign exchange dealing room of the Hana Bank headquarters in Seoul, South Korea, Tuesday, Sept. 1, 2026. (AP Photo/Ahn Young-joon)

A person walks in front of an electronic stock board showing Japan's Nikkei index at a securities firm Monday, Aug. 31, 2026, in Tokyo. (AP Photo/Eugene Hoshiko)

LONDON (AP) — Prime Minister Andy Burnham will face lawmakers in the House of Commons on Tuesday for the first time since becoming U.K. leader six weeks ago, with wars in Europe and the Middle East weighing on his promise to kick-start the economy and ease the cost of living.

Since taking office on July 20, Burnham has traveled around the country promising to deliver renewed national optimism after the downbeat two-year tenure of predecessor Keir Starmer, who announced Tuesday that he would resign his seat in Parliament after 11 years.

Burnham has announced a series of modest money-saving measures aimed at giving “breathing space” to people and businesses, including a tax cut on domestic energy bills and a lowering of levies on pubs and nightclubs.

But neither opponents nor his own Labour Party legislators have been able to grill him on the details of pledges made against the tough backdrop of mounting security challenges and economic pressure from the Iran war.

Conservative leader Kemi Badenoch, who shook up her top team on Monday by appointing new economy and foreign affairs spokespeople, finally gets a chance to grill Burnham on Tuesday when Parliament returns from its summer break.

Burnham, a former lawmaker who was elected to Parliament in June after almost a decade away as mayor of Greater Manchester, is set to make a statement in the House of Commons setting out his vision of a more active but less centralized state.

The prime minister’s office said that Burnham will set out “a clear plan for how we turn things round.” He is expected to say that greater public control over water, energy and transportation can drive economic growth and ease households’ financial burden, though it’s unclear to what extent he plans to reverse decades of privatization of key pillars of the economy.

Opponents have plenty of questions, including about No. 10 North, a second prime minister’s office in Manchester. Burnham says it will help drive plans to give local leaders more powers and spread economic growth around the country. Critics call it an expensive gimmick.

Burnham also faces pressure over Britain’s overcrowded prisons. He was forced to water down plans to release some offenders early following calls from the widow of a police officer who died in a hit-and-run to keep his killers in jail.

In his first foreign trip as U.K. leader, Burnham visited Kyiv last month to underscore Britain’s support for Ukraine. Like other European countries, the United Kingdom is under pressure to spend more on the military in response to challenges from Russia and the Trump administration, whose priorities lie elsewhere.

Burnham’s government will have to provide details in the coming weeks on how it plans to fund an increase in defense spending to meet NATO’s target of 3.5% of gross domestic product by 2035.

Burnham also faces a contentious decision on whether to greenlight more oil and gas production in the North Sea, a move supported by U.S. President Donald Trump that faces opposition from advocates of clean energy.

Britain's Prime Minister Andy Burnham talks with staff during a visit to a supermarket in London, Wednesday, Aug. 26, 2026, highlighting the government’s commitment to working with businesses to help young people gain experience, build confidence, and prepare for work. (Richard Pohle/Pool Photo via AP)