UK Gilt Yields Fall Sharply on Hopes of Quick Resolution to Iran War

• British government bond yields dropped sharply on Wednesday, May 6, 2026, as investors scaled back their bets on interest rate hikes after officials in Pakistan said the ​United States and Iran were closing in on a one-page memorandum to end the ‌war.
• Financial markets trimmed their expectations for ​increases in borrowing costs by the Bank of England (BoE) this year, pricing in 49 ​bps of interest rate hikes, equivalent to two quarter-point rises.
• Two-year gilt yields, which are sensitive to interest rate expectations, slumped 18 basis points to 4.339% on Wednesday morning and were on course for the biggest daily drop in almost a month. Longer-dated yields also fell, ⁠with the 10-year yield falling as much as 15 bps to 4.905%, the lowest since ​April 23. Thirty-year gilt yields were down 14 bps. That contrasted with moves on Tuesday, when ​30-year gilt yields rose to their highest since 1998.
• Since the start of the U.S.-Israeli war on Iran in late ​February, British bond prices have slumped and fallen further as an agreement to reopen the Strait of Hormuz did not ​materialise. However, the U.S. and Iran are nearing a deal to end the war soon, according to reports on Wednesday, May 6, 2026.
• Investors viewed the reports of a possible deal to end the war, which triggered a sharp decline in oil prices, as reducing the risk of another inflation shock, prompting markets to scale back expectations for further BoE tightening and fuelling a broad rally across UK government bonds and equities on Wednesday.

(Sources: Reuters)