The UK 10-year gilt yield rose back above 5.2%, recovering from nearly two-month lows, as oil prices rebounded following reports of a US strike on Iran’s Qeshm Island and investors remained cautious ahead of Tuesday’s US midterm elections. Yields had fallen in October after Chancellor John Healey’s first budget largely reassured markets by adhering to the government’s self-imposed borrowing rules. Sentiment was further supported by mounting concerns over social unrest and rising public debt in the Eurozone, prompting investors to rotate out of regional assets and into UK government bonds.
Looking ahead, the Bank of England is widely expected to deliver its first interest rate hike since 2023 on Thursday, responding to intensifying inflationary pressures linked to the war involving Iran and signs of resilience in the UK economy. However, policymakers are also expected to push back against market pricing for multiple additional rate increases next year.
