With oil prices breaching $100 per barrel, investors spent the week assessing whether inflation, bond yields and interest rates might stay higher for longer.
Read this article to understand:
- The impact of higher oil prices and rising interest rates
- How structural demand for long-term financing is also raising borrowing costs
- What it has meant for equity markets this week
Markets were jolted this week as Brent crude oil surged through the $100 per barrel mark and finished above $107, its highest level since May. The move reignited concerns about inflation, added to pressure on central banks and arrived at a time when bond yields were already near multi-year highs.
Investors increasingly spent the week considering whether higher prices may persist
The catalyst was a further escalation of tensions in the Middle East, which raised concerns about shipping routes, energy infrastructure and the potential for prolonged disruption to global energy supplies. European natural gas prices also climbed sharply, reaching levels not seen since 2022. While energy markets have experienced several false alarms recently, investors increasingly spent the week considering whether higher prices may persist for longer than previously expected.
The move above $100 per barrel was particularly notable. While there is nothing inherently significant about the number itself, it is often viewed as the point at which higher energy costs begin to have a more visible impact on both companies and consumers. For businesses, it raises transport and production costs. For households, it reduces disposable income. Perhaps most importantly, persistent energy inflation can make central banks less comfortable about the outlook for inflation.
That was reinforced by the European Central Bank, which raised interest rates by 0.25 per cent, taking its deposit rate to 2.5 per cent. Policymakers also upgraded their inflation forecasts and warned that price pressures were likely to remain above target for an extended period, reinforcing expectations that interest rates may stay higher for longer.
Bond markets remained at the centre of attention throughout the week. The US ten-year Treasury yield moved towards five per cent, while Germany’s ten-year Bund yield reached 3.5 per cent, both levels not seen for many years. These moves partly reflected concerns that there may be more policy tightening ahead if higher energy prices begin feeding into broader inflation pressures.
Investors are asked to absorb growing government borrowing at the same time as companies are raising long-term capital
Further out on the curve, however, another dynamic is also at work. Thirty-year US Treasury yields climbed to their highest levels since 2007 this week, reflecting broader structural forces rather than just inflation expectations. Investors are being asked to absorb growing amounts of government borrowing at the same time as companies are raising long-term capital to fund artificial intelligence infrastructure, data centres, semiconductor manufacturing and power networks. When more borrowers compete for the same pool of capital, investors typically demand higher returns. It isn’t a reason to panic, but it has resulted in an orderly repricing of long-term borrowing costs after more than a decade of exceptionally low interest rates.
Economic data released during the week reinforced the view that global growth remains resilient. Chinese trade figures surprised positively, Japanese wage growth accelerated to its strongest pace in years, and US nominal GDP growth reached approximately 6.6 per cent year-on-year in the second quarter. None of this points towards an economy slipping into recession.
Equity markets nevertheless found the combination of rising energy prices and higher yields difficult to digest. The S&P 500 fell for four consecutive trading sessions, while European equities also moved lower. Importantly, this was not driven by fears of an imminent economic downturn. Labour markets remain relatively healthy, earnings expectations are high and activity levels continue to hold up across many regions.
Equity markets found the combination of rising energy prices and higher yields difficult to digest
Beneath the surface, there were some notable divergences. Energy companies generally outperformed as oil prices surged, while sectors more sensitive to interest rates struggled. Copper prices remained close to record highs, reflecting ongoing supply constraints and continued confidence in long-term investment themes such as electrification, power infrastructure and artificial intelligence.
The significance of this week’s market move was not simply that oil rose above $100 per barrel. Rather, it was the timing of that move. Energy prices surged at a point when bond yields were already high relative to recent years. Higher energy costs alone are unlikely to derail global growth, but they do make the task facing central banks considerably more difficult. If oil remains above $100 and persistent inflation pressures emerge, markets may have to contend with a more difficult environment as we move towards the final quarter of the year.1
Past performance is not a reliable indicator of future results.
References
- Source of all the data for this article: Aviva Investors and Bloomberg. Data as of 11 September 2026.
