14th September 2026
The important question is whether the Houthi attacks are creating a temporary market scare or the beginnings of a new inflation problem that could force the Bank of England to raise interest rates.
There are three things in play right now.
Government bonds: Are investors selling bonds and pushing yields higher?
The S&P 500: Is the American share market falling because of higher oil prices and interest-rate fears?
Interest rates: How much might the Bank of England have to raise rates, and when?
A key distinction: bond yields rising means bond prices are falling. That does not automatically mean a financial crisis, but a sustained rise in yields can make mortgages, government borrowing and business finance more expensive.
1. Is there a bond sell-off happening?
The global bond sell-off is real, and it has been worsening in response to the oil-price shock.
The latest reports show that investors have been selling government debt, pushing yields higher. This is happening alongside fears about inflation and government borrowing.
Bond market
What the latest reports show
5.37%+
UK 10-year gilt yield
Reported above 5.37% on September 10, its highest level since 2007. The Times subsequently reported UK government borrowing costs above 5%, with yields up about half a percentage point during the sell-off.
5.38%
US 30-year Treasury yield
The 30-year US yield reached around 5.38% on September 10, according to Reuters reporting. The 10-year yield was approaching 5%.
Why are bonds being sold?
There are several pressures operating together.
Oil and inflation: Higher oil prices make investors think central banks may need to keep rates higher for longer.
Government borrowing: Investors are also worried about the amount of debt governments are issuing and the cost of servicing it. This is especially important for the UK and US, where long-term borrowing costs have been under pressure.
Interest-rate expectations: When investors expect future interest rates to be higher, existing bonds paying lower coupons become less attractive. Their prices fall until their yields become competitive.
The UK situation is particularly awkward. Higher gilt yields increase the cost of government borrowing, while the Bank of England is simultaneously trying to control inflation without damaging the economy.
The Guardian
2. What is happening in the S&P 500?
The S&P 500 is also under pressure from the combination of rising oil prices, higher bond yields and concerns about interest rates.
Reuters reported that US shares were falling as the global bond sell-off deepened in early September. The S&P 500 and Nasdaq were among the markets affected, with higher Treasury yields putting pressure on share valuations.
Why does this matter for American shares?
The S&P 500 contains many companies whose valuations depend on expectations of future profits.
When bond yields rise, investors can earn more from relatively safe government debt. That makes shares less attractive unless their expected returns also rise.
Higher rates can also reduce the value investors place on future profits, particularly for technology companies whose expected growth is far into the future.
There is another concern: higher oil prices can squeeze businesses and consumers.
Airlines and transport companies face higher fuel costs.
Manufacturers face higher energy and shipping costs.
Consumers have less money to spend on other goods.
Businesses may face higher borrowing costs.
That creates a difficult combination for shares: higher costs, potentially weaker demand and higher interest rates.
However, it is important not to overstate the fall. The latest reports establish that the S&P 500 has been under pressure, but they do not provide a verified current index level or percentage fall for this morning. I would not put a precise figure in the article without checking live market data.
3. What is the likely Bank of England interest-rate hike?
This is the part that matters most for Britain. The latest market expectations are quite striking.
Bank of England Rate outlook September meeting
3.75% likely to stay.
The market is assigning roughly a one-in-three chance of a rate rise at the September meeting. The latest Guardian report says the Bank is expected to hold at 3.75%.
By November a rise becomes more likely
The Financial Times reports that markets expect a rate increase by November, depending on inflation, wages and the continuing oil shock.
Financial Times
Within the next year four 0.25-point hikes priced in. Markets have been pricing in four quarter-point increases within a year, according to reports. That would take Bank Rate from 3.75% to around 4.75%, if all four were delivered.
We should separate the likely immediate decision from the longer-term risk.
September: A hold at 3.75% looks more likely than a hike, based on the latest reports.
November: A 0.25 percentage-point rise is a serious possibility if oil remains high and inflation expectations continue to rise.
Over the following year the market pricing of four increases is a warning that investors are preparing for a much more persistent inflation problem. It is not a promise that the Bank will actually raise rates four times.
The next decision will depend on more than oil. The Bank will look at wage growth, services inflation, unemployment, economic growth and whether the oil shock is spreading into wider prices.
4. Could the Bank be forced to raise rates even as the economy weakens?
This is the uncomfortable possibility. Imagine that oil stays around $105–$110 a barrel for several months.
That could lead to a range of negative outcomes. Oil and shipping remain expensive. Fuel, transport, fertiliser and imported goods costs rise. Inflation stays above target. Food, energy and other prices feed through to households and businesses.
Bank faces pressure to tighten and higher rates may be needed to prevent the inflation shock becoming embedded.
Growth suffers hitting mortgages, business loans and government borrowing become more expensive. That is a classic supply-shock problem. The Bank cannot manufacture more oil or fertiliser. It can, however, influence demand and inflation expectations.
There is a danger that higher rates will hurt the economy without immediately bringing down the price of oil. That is why central banks have to be careful about reacting too aggressively to a temporary energy shock.
5. What about the US Federal Reserve?
The US is facing a similar problem, but its interest-rate expectations are also being driven by domestic inflation.
Reuters reported that markets were pricing in a high probability of a 0.25 percentage-point Fed hike in September, with Goldman Sachs and JP Morgan expecting an increase. The US bond market is particularly important because Treasury yields influence borrowing costs across the world.
If American yields remain high, British and European bonds may also come under pressure as investors compare returns and reassess the global outlook.
The result could be a worldwide tightening of financial conditions, even before every central bank actually raises its policy rate.
The latest developments point to a worrying possibility for Britain. The Houthi attacks and the wider Middle East conflict are pushing oil prices higher, while the global bond market is already under pressure. Investors are becoming increasingly concerned that inflation will remain stubborn and that central banks will have to keep interest rates higher for longer.
For the Bank of England, the immediate decision may still be to hold rates at 3.75%. But the market is now preparing for a possible rise by November, with several increases priced in over the following year.
That is a significant change from the hope that interest rates might soon begin falling.
The danger is that Britain could be caught between two problems at once with rising prices and a weakening economy.
Higher oil and fertiliser costs would squeeze households and businesses. Higher interest rates would add to the pressure, particularly for mortgage holders and companies that need to borrow.
The S&P 500 and other share markets are already feeling the strain from rising bond yields and the threat of tighter monetary policy.
The question now is whether the Middle East crisis settles down before the inflation shock becomes embedded, or whether the world is heading towards a new period of expensive energy, higher borrowing costs and weaker growth.
The next few months could tell us whether this is simply another oil-price spike, or the beginning of a much more serious financial problem.