UK Gilt Yields Near April Lows as Inflation Fears Ease

UK 10-year gilt yields hovered at 4.8% at the end of May, near their lowest since April 17 and on track for a 19-basis-point monthly decline, as cautious optimism over a potential US-Iran agreement helped ease inflation concerns. Negotiations to end the three-month war continued, with reports that Washington and Tehran had agreed on a 60-day ceasefire extension to allow formal talks, though President Trump has yet to approve the memorandum of understanding. The bond market also drew support from UK Prime Minister Keir Starmer’s Labour Party suffering local election losses that were not as severe as initially feared. Domestic data further bolstered sentiment, with a cooling labor market, softer-than-expected inflation, and signs of slowing economic activity leading traders to scale back expectations for a Bank of England rate hike.

UK 10-year gilt yields reversed early gains to slip back toward 4.8%, their lowest level since April 17, as renewed optimism over a potential US–Iran agreement helped ease inflation concerns and supported fixed-income markets. The rally in UK government bonds extended to a seventh consecutive session, marking the longest winning streak since just before tensions escalated in the Iran conflict in late February. Sentiment has also been underpinned by recent domestic data showing a cooling labor market, softer-than-expected inflation, and signs of slowing economic activity, prompting traders to scale back expectations for a Bank of England rate hike. According to Axios, US and Iranian negotiators have reached a memorandum of understanding aimed at extending a ceasefire by 60 days and initiating talks on Iran’s nuclear program, though final approval from US President Donald Trump is still pending.

UK 10-year gilt yields edged up to 4.86% as escalating US-Iran tensions threatened their ceasefire, pushing oil prices higher and reigniting inflation concerns. This ended a five-day rally for UK government bonds, the longest since just before the Iran conflict escalated in late February. Recent weak labor market data, softer-than-expected inflation, and signs of slowing economic activity had led traders to scale back their bets on a Bank of England rate hike, with markets fully pricing in just one increase this year. However, traders slightly raised their bets today as rising oil prices underscored that the crisis is far from over, with a peace deal still out of reach. A Washington official confirmed US strikes on an Iranian drone operation near the Strait of Hormuz, following reports that President Donald Trump had rejected a potential compromise with Tehran. In retaliation, Iran’s Revolutionary Guard targeted a US airbase on Thursday.