Why the Iran War Rattled the UK Bond Market

The conflict in the Middle East has rattled markets around the world, but the gyrations have been especially pronounced in UK bonds, which are particularly vulnerable to jitters over inflation and strained government finances.

Bonds fell globally in March on concern the conflict would prompt central banks to raise interest rates, but the UK endured some of the most extreme market moves. The 10-year yield — a benchmark for Britain’s borrowing costs — briefly topped 5% on March 20 for the first time since the 2008 financial crisis (bond yields move in the opposite direction of prices). Traders are betting that the Bank of England will raise rates by at least half a percentage point this year.