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May 18, 2026 – 02:44

(Bloomberg) — Stocks extended their slide from record highs as a continued deadlock over the Iran war lifted oil prices and deepened a selloff in global bonds.

Asian shares fell as much as 1.1%, before paring losses, as South Korean stocks neared a correction. Futures on the S&P 500 Index fell 0.5% after the underlying gauge declined more than 1% on Friday as inflation concerns sent bond yields sharply higher. The dollar, the haven of choice during the Middle East conflict, held its gains after its best week since early March.

Weighing on the sentiment, Brent crude rose 1.2% to around $110.60 a barrel, after adding almost 8% last week, with no progress in efforts to reopen the vital Strait of Hormuz. President Donald Trump also said the “clock is ticking” for Iran to strike a deal.

US government bonds, coming off their worst week in a year, continued their declines. That sent the 10-year Treasury yield up one basis point to 4.60% as elevated oil prices fueled inflation and weakened the outlook for economic growth. Yields on the 30-year are near a two-decade high. Japan’s 10- and 20-year rates rose about 10 basis points to their highest levels since 1996, while bonds fell in Australia and New Zealand.

The moves follow a selloff in stocks and bonds Friday as fears grow that the effective closure of the Strait of Hormuz will keep oil prices elevated, fuel inflation and force central banks to keep interest rates higher. For months, investors had largely brushed aside those risks as equities surged on bets that billions of dollars spent on the AI rollout would drive corporate earnings growth.

“We are definitely in the midst of a mini rate shock,” said Kyle Rodda, a senior analyst at Capital.com in Melbourne. “The upside risk to rates is going to bring a bit of uncertainty to the markets, but that sort of volatility tends to be quite two-way,” he said, adding that equities could still see bouts of short-term relief.

Washington offered “no tangible concessions” while seeking “to obtain concessions that it failed to obtain during the war, which will lead to an impasse in the negotiations,” said Iran’s semi-official Mehr news agency.

Meantime, a drone attack sparked a fire at a United Arab Emirates nuclear plant, highlighting the risks to the fragile ceasefire.

High oil prices risk ushering a new era of elevated borrowing costs as war-driven inflation angst intensifies in global bond markets. Japan’s 30-year yield climbed to 4% for the first time since 1999 last week while US 30-year Treasury yields moved toward a two-decade high above 5%.

Finance ministers of the Group-of-Seven are set to discuss the debt selloff when they meet this week, though how they can ease pressure remains to be seen. The core issue remains the transit of oil through the Strait of Hormuz, a vital artery for the flow of oil and gas from the Middle East.

“The Strait of Hormuz blockade will remain the dominant market driver because there is no clear endgame in sight while the buffer from global oil inventories is shrinking fast,” said Elias Haddad, global head of markets strategy at Brown Brothers Harriman. “As a result, crude oil prices are vulnerable to more upside, weighing on both global bond and equity markets.”

Elsewhere, the pound weakened in early trading after Wes Streeting said he would take part in any leadership contest to replace Keir Starmer and called for Britain to rejoin the European Union. The declaration follows Manchester Mayor Andy Burnham who announced he intends to run for parliament, opening a pathway to also challenge Starmer, which caused a rout in gilts last week in fears of possible expansionary fiscal policy.

In the latest announcement following Trump’s two-day summit in China, Beijing agreed to purchase at least $17 billion of agricultural products from the US annually through 2028, the White House said in a fact sheet detailing the meeting.

Attention will firmly be on the bond market, with a shift in wagers around the Federal Reserve. Traders now see an interest-rate hike as a lock by March, underscoring how the Iran war has flipped the bond-market narrative on its head since late February, when two quarter-point cuts were expected for 2026.

The key, investors say, is that the pressure on bonds will persist as long as the standoff in the Middle East staunches the flow of oil through the vital Strait of Hormuz.

“Ultimately, the Iran war will find a conclusion and commodity prices will come back down towards pre-war levels,” said Scott Ladner, chief investment officer at Horizon Investments. “But with earnings season in the US coming towards its close, investors are focusing again on the macro picture, and that picture is being painted with higher interest rates, always a headwind for equity markets.”

Some of the main moves in markets:

Stocks

S&P 500 futures fell 0.6% as of 9:42 a.m. Tokyo time Hang Seng futures fell 0.3% Japan’s Topix fell 0.8% Australia’s S&P/ASX 200 fell 0.9% Euro Stoxx 50 futures fell 0.6% Currencies

The Bloomberg Dollar Spot Index was little changed The euro fell 0.1% to $1.1611 The Japanese yen was little changed at 158.87 per dollar The offshore yuan was little changed at 6.8179 per dollar The Australian dollar fell 0.4% to $0.7122 Cryptocurrencies

Bitcoin fell 1.6% to $76,986.2 Ether fell 3.7% to $2,108.08 Bonds

The yield on 10-year Treasuries advanced one basis point to 4.61% Japan’s 10-year yield advanced 7.5 basis points to 2.775% Australia’s 10-year yield advanced four basis points to 5.11% Commodities

West Texas Intermediate crude rose 1.7% to $107.16 a barrel Spot gold fell 1.2% to $4,485.25 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Matthew Burgess and Mia Glass.

©2026 Bloomberg L.P.