UK Gilt Yield Holds at 4.85%

The UK’s 10-year gilt yield stabilized at 4.85%, retreating from Monday’s near 18-year high of 5.1%, as Middle East tensions and disappointing PMI figures shaped market sentiment. President Trump delayed US strikes on Iran, citing "positive talks", a claim Tehran rejected, though reports suggested indirect negotiations. However, an Israeli official dismissed ceasefire prospects, stating Iran shows no willingness to concede, while Israel’s Defense Minister vowed to "continue striking Iran with full force." Adding to pressure, flash PMI data revealed UK business activity at its weakest since September 2025, with the war stalling growth and driving inflation higher. Investors now price in multiple BoE rate hikes for 2026, abandoning pre-war expectations of two cuts, as policymakers focus on taming inflation amid the UK’s vulnerability to energy shocks.

The UK’s 10-year gilt yield pulled back to 4.85%, after earlier surging to 5.096%, its highest since July 2008, as tensions eased following President Trump’s five-day delay in planned strikes on Iran. The move, framed as a response to "very good and productive" talks with Tehran, temporarily calmed markets ahead of a 48-hour US deadline for Iran to reopen the Strait of Hormuz. However, Iran’s state-run Fars News Agency dismissed the claim, reporting no direct or indirect talks with the US and suggesting Trump’s retreat followed Iran’s threat to target all West Asian power plants. Investors continue to bet on multiple BoE rate hikes in 2026, abandoning pre-war expectations of two cuts, as policymakers prioritize inflation control amid the UK’s exposure to energy disruptions. Attention now shifts to February CPI, retail sales, March PMI, and consumer confidence data, which may further influence the central bank’s stance amid the ongoing crisis.

The UK’s 10-year gilt yield surged above 5%, reaching its highest level since July 2008, as the Middle East conflict sent energy prices soaring and intensified expectations of aggressive Bank of England rate hikes. Shorter-term 2-year yields jumped above 4.6%, a peak since February 2024, while 30-year yields hit 5.6%, the highest since September 2025. British bonds have been among the worst performers since the US-Israel strikes on Iran, with the UK’s heavy reliance on imported energy amplifying vulnerability to supply shocks. Markets now price in four quarter-point BoE hikes this year, a stark reversal from pre-conflict expectations of two rate cuts, as policymakers pledge to combat inflation. The spike in borrowing costs is straining the government’s fiscal targets, prompting Prime Minister Keir Starmer to call an emergency meeting with BoE Governor Andrew Bailey on Monday to address the crisis.