UK 10Y Bond Yield Hits 4-week High

UK 10-year gilt yields dropped below 4.9% to their lowest level since April 21, after the sharpest weekly decline since 2024, as investors cheered progress in US-Iran negotiations and trimmed Bank of England rate hike expectations amid weak economic data. Brent crude dropped below $100 per barrel after US President Donald Trump stated that a memorandum of understanding between the two nations had been "largely negotiated" and would reopen the Strait of Hormuz. Meanwhile, data last week showed April retail sales slumped 1.3%, nearly double forecasts, while inflation and labor market data also came in softer than expected. May PMI readings signaled the first private sector contraction in a year, reinforcing the shift in rate expectations. Investors now await speeches from BoE policymakers later this week for monetary policy signals, as well as political developments surrounding Prime Minister Keir Starmer after Labour's regional election defeats this month.

UK 10-year gilt yields slipped toward 4.9%, booking their sharpest weekly decline since 2024 and nearly erasing the previous week’s losses from political turmoil, as weak economic data and US-Iran uncertainty dominated the week. April retail sales plummeted 1.3%, nearly double the forecasted 0.6% decline, while the UK’s budget deficit swelled to £24.3 billion in April, surpassing the £20.9 billion estimate and marking the highest April shortfall since 2020. These figures followed earlier reports of softer-than-expected April inflation, an unexpected cooling in the labor market, and May PMI data signaling a contraction in private sector activity, prompting traders to trim bets on Bank of England rate increases. Meanwhile, US Senator Marco Rubio noted "some good signs" in Iran negotiations, though Tehran’s uranium stockpile and control over the Strait of Hormuz remain major obstacles.

UK 10-year gilt yields trimmed early losses to trade nearly unchanged at 4.97% as the Middle East conflict deadlock pushed oil prices higher and added to inflationary pressures. Iran’s Supreme Leader has reportedly issued a directive that the country’s near weapons-grade uranium should not be sent abroad, hardening Tehran’s stance on a key US demand at peace talks. Investors also assessed economic data and its potential impact on monetary policy. A PMI survey showed the UK economy contracted in May, ending a 12-month streak of growth, amid rising political uncertainty and the growing impact of the Middle East conflict. Businesses reported falling output, surging inflation, supply shortages, and job cuts. The weak PMI followed earlier data showing April inflation came in below expectations and the jobs market unexpectedly softened, complicating the Bank of England’s task as it is expected to raise interest rates at least twice this year.