Gilt market slump deepens as traders bet on BoE rate rise

Gilt market slump deepens as traders bet on Bank of England rate rise on x (opens in a new window)Gilt market slump deepens as traders bet on Bank of England rate rise on facebook (opens in a new window)Gilt market slump deepens as traders bet on Bank of England rate rise on linkedin (opens in a new window)Gilt market slump deepens as traders bet on Bank of England rate rise on whatsapp (opens in a new window) Save Gilt market slump deepens as traders bet on Bank of England rate rise on x (opens in a new window)Gilt market slump deepens as traders bet on Bank of England rate rise on facebook (opens in a new window)Gilt market slump deepens as traders bet on Bank of England rate rise on linkedin (opens in a new window)Gilt market slump deepens as traders bet on Bank of England rate rise on whatsapp (opens in a new window) Save Rachel Rees, Emily Herbert and Ian Smith in LondonPublishedMarch 9 2026UpdatedMarch 9 2026Jump to comments sectionPrint this pageUnlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.A rout in gilts deepened on Monday in volatile trading, as surging energy prices fuelled fears of an inflation shock in the UK and prompted traders to bet on interest rate rises from the Bank of England.The yield on the two-year gilt soared 0.24 percentage points to 4.11 per cent, in one of the biggest one-day sell-offs in recent years, while the yield on the 10-year gilt climbed 0.17 percentage points to 4.79 per cent. Yields rise when prices fall. The gilt market is at the centre of a global bond rout as the surge in oil and gas prices unleashed by the Middle East war forces investors to radically change their bets on the future path of interest rates. “The turnaround [in central bank rate expectations] has been really fast and brutal,” said Moyeen Islam, head of UK rates strategy at Barclays. He added that “gilts are catching a lot of the muscle memory in the market of the 2022-23 period, where the rise in energy prices drove a rise in inflation that drove yields higher”. Traders are now ascribing a roughly 70 per cent chance that the BoE will raise interest rates by a quarter of a percentage point before the end of the year. Before the conflict began 10 days ago, two quarter-point cuts had been priced in.Hopes for rate cuts across a string of big economies have diminished. The market is now expecting two quarter-point rate rises from the European Central Bank by the end of the year, where before the conflict there had been modest hopes of a further cut.In the US, one or two further cuts are expected from the Federal Reserve, compared with the two or three before the conflict. Gilts have been particularly vulnerable as the BoE had been expected to cut rates more aggressively this year than central banks in other major economies. Oil prices rose further on Monday, with Brent crude, the international benchmark, passing $100 a barrel for the first time in four years. European gas prices also advanced, with the region’s benchmark up 13 per cent.The sharp shift higher in interest rate expectations has been triggered by surging energy prices since the US and Israel attacked Iran, sparking an escalating regional conflict that has all but halted oil and gas flows from the Middle East.“Gilts continue to be much more sensitive to energy prices than other markets, however this is beginning to look somewhat disproportionate,” said Jason Borbora-Sheen, portfolio manager at Ninety One. Yields on two-year gilts have now risen more than 0.6 percentage points since the conflict began, to their highest level since April 2025.The negative impact of higher oil prices on economic growth also “needs to be priced”, Borbora-Sheen said.Reuse this content (opens in new window) CommentsJump to comments section Follow the topics in this article Gilts Add to myFT Oil Add to myFT Oil & Gas industry Add to myFT UK interest rates Add to myFT Bank of England Add to myFT CommentsA rout in gilts deepened on Monday in volatile trading, as surging energy prices fuelled fears of an inflation shock in the UK and prompted traders to bet on interest rate rises from the Bank of England.The yield on the two-year gilt soared 0.24 percentage points to 4.11 per cent, in one of the biggest one-day sell-offs in recent years, while the yield on the 10-year gilt climbed 0.17 percentage points to 4.79 per cent. Yields rise when prices fall. The gilt market is at the centre of a global bond rout as the surge in oil and gas prices unleashed by the Middle East war forces investors to radically change their bets on the future path of interest rates. “The turnaround [in central bank rate expectations] has been really fast and brutal,” said Moyeen Islam, head of UK rates strategy at Barclays. He added that “gilts are catching a lot of the muscle memory in the market of the 2022-23 period, where the rise in energy prices drove a rise in inflation that drove yields higher”. Traders are now ascribing a roughly 70 per cent chance that the BoE will raise interest rates by a quarter of a percentage point before the end of the year. Before the conflict began 10 days ago, two quarter-point cuts had been priced in.Hopes for rate cuts across a string of big economies have diminished. The market is now expecting two quarter-point rate rises from the European Central Bank by the end of the year, where before the conflict there had been modest hopes of a further cut.In the US, one or two further cuts are expected from the Federal Reserve, compared with the two or three before the conflict. Gilts have been particularly vulnerable as the BoE had been expected to cut rates more aggressively this year than central banks in other major economies. Oil prices rose further on Monday, with Brent crude, the international benchmark, passing $100 a barrel for the first time in four years. European gas prices also advanced, with the region’s benchmark up 13 per cent.The sharp shift higher in interest rate expectations has been triggered by surging energy prices since the US and Israel attacked Iran, sparking an escalating regional conflict that has all but halted oil and gas flows from the Middle East.“Gilts continue to be much more sensitive to energy prices than other markets, however this is beginning to look somewhat disproportionate,” said Jason Borbora-Sheen, portfolio manager at Ninety One. Yields on two-year gilts have now risen more than 0.6 percentage points since the conflict began, to their highest level since April 2025.The negative impact of higher oil prices on economic growth also “needs to be priced”, Borbora-Sheen said.