Global Market: UK gilt yields hit one-week low as oil prices retreat, easing rate concerns

British government bond yields fell to a one-week low on Monday after oil prices tumbled sharply from the more than $100-a-barrel levels reached last week, boosting investor sentiment and easing concerns over inflation, according to Reuters.

The decline in oil prices followed a pause in U.S. military attacks on Iran, reducing fears of a prolonged disruption to global energy supplies and encouraging investors to move back into government bonds.

The yield on the two-year UK government bond, or gilt, which is highly sensitive to expectations for Bank of England interest rates, dropped 6 basis points to 4.362%. Earlier in the session, it touched 4.348%, its lowest level since July 20, Reuters reported.


Longer-dated government debt also rallied. The benchmark 10-year gilt yield slipped below the 5% mark, falling 5 basis points to 4.986%, while the 30-year gilt yield declined 3 basis points to 5.69%. Both yields were also at their lowest levels since July 20 and broadly mirrored moves in U.S. Treasury and German government bond markets.

Market participants appeared to embrace a risk-on mood as geopolitical tensions eased and energy prices retreated, supporting demand for fixed-income assets.

Reuters reported that even when crude oil prices briefly climbed above $100 a barrel last week, economists surveyed did not expect the Bank of England to raise interest rates at its policy meeting on Thursday. Most economists continued to forecast a 7-2 vote split among members of the Monetary Policy Committee in favor of keeping the benchmark rate unchanged at 3.75%.

Financial markets, however, remained somewhat more hawkish than economists. Traders were pricing in roughly a 50% probability of a Bank of England rate increase by its September meeting and expected a second rate hike by March 2027.