Gilt Yields Reverse Rise as Trump Postpones Strikes on Iran Power Plants — Update

By Miriam Mukuru

Yields on U.K. government bonds turned lower on Monday, sharply reversing earlier steep rises after U.S. President Trump said he would postpone military strikes on Iranian power plants, causing oil prices to drop amid prospects of a resolution to the conflict.

Trump said on his Truth Social platform that he would postpone all military strikes against Iranian power plants and energy infrastructure for five days. This followed "very good and productive" conversations between the U.S. and Iran regarding a complete and total resolution of hostilities in the Middle East, Trump said.

In a volatile day, the yield on the 10-year U.K. government bond reversed course, having earlier jumped to its highest level since 2008 at 5.118%, according to LSEG. The yield was last down 4 basis points at 4.942%.

The surge in oil and gas prices due to the Middle East war has revived concerns about inflation and led investors to move rapidly to anticipating several interest-rate rises by the Bank of England from expecting rate cuts prior to the conflict.

The central bank last week voted unanimously to keep interest rates on hold and signaled a readiness to raise interest rates if necessary.

Adding to that, investors are worried about the state of the U.K.'s public finances alongside a weak economy. Yields on U.K. government bonds have risen faster than their U.S. and eurozone counterparts since the start of the Middle East war.

The sharp rise in gilt yields "emphasizes the U.K.'s vulnerable position as a high inflation economy with weak public finances," XTB's research director Kathleen Brooks said in a note.

U.K. money markets now price in two BOE interest-rate rises in 2026, having priced in more than three prior to Trump's comments, LSEG data showed. Prior to hostilities in the Middle East, money markets had priced in two rate cuts.

The U.K. rates market has seen "one of the sharpest shocks in recent history," Morgan Stanley rates strategists Fabio Bassanin and Luca Salford said in a note.

The gilt market could start to price in a risk of greater fiscal stimulus to support U.K. households and consequently "higher fiscal risk," potentially sending yields even higher, they said.

Some analysts, however, said that market pricing of BOE rate hikes and the subsequent rise in gilt yields appeared overdone.

"While the [BOE's] monetary policy committee noted the presence of economic slack and that the current energy shock is not comparable to 2022, the main focus was on second-round effects," Societe Generale strategists said in a note. "We now expect the MPC to remain on hold throughout 2026."

Write to Miriam Mukuru at miriam.mukuru@wsj.com

(END) Dow Jones Newswires

March 23, 2026 09:21 ET (13:21 GMT)