US-Iran military strikes have shattered the fragile ceasefire agreed less than five weeks ago, sending 10-year UK gilt yields to their highest level since the 2008 global financial crisis and wiping out weeks of gains across global markets.
Yields on benchmark UK government debt rose 13 basis points to 4.98 per cent during trading on Monday, touching an intraday peak of 5.02 per cent, according to Business Matters Magazine, surpassing the peaks seen during the market turmoil that followed the 2022 mini-budget.
US-Iran Military Strikes Escalate Beyond the MoU Ceasefire
The US and Iran agreed a memorandum of understanding on 17 June, pausing military action for 60 days while both sides negotiated a lasting peace deal. The 14-point document, whose full text was published by i24NEWS, committed both parties to concluding a final agreement within that window and included a provision to resolve the fate of Iran’s enriched uranium stockpile through IAEA-supervised on-site down-blending.
The deal was signed by President Trump, Iranian President Masoud Pezeshkian, and Pakistan’s prime minister, who had mediated between Washington and Tehran, according to NPR.
That framework has since collapsed. US Central Command disclosed that its strike on 16 July was the sixth consecutive night of operations against Iranian targets, with the mission completed at 9:40 p.m. ET and directed at further degrading Iranian military capabilities, according to CENTCOM.
By 17 July, CENTCOM was enforcing a full naval blockade against Iranian ports alongside strikes on surveillance sites, military logistics infrastructure, and underground weapons storage. By 19 July, it had completed nine consecutive nights of precision strikes targeting Iranian command centres, air defence, missile and drone launch sites, and communications networks, all aimed at limiting Iran’s ability to attack commercial vessels in the Strait of Hormuz.
The latest overnight wave struck around 90 Iranian targets, the US military said. Iran retaliated with strikes on military sites in Bahrain and Kuwait, and Tehran has threatened a ‘massive’ response.
Speaking at the Nato summit in Turkey, Donald Trump said: ‘We just hit them very hard, and I say we hit them 20… they hit us, we’re going to hit them 20.’ Asked about a negotiated settlement, Trump told a news conference: ‘Let’s just finish the job.’
Energy Shock Threatens Bank of England Rate Path
The market consequences have extended well beyond equities. UK wholesale gas prices surged 93 per cent in a single week as Iranian strikes hit Gulf infrastructure, raising expectations that the Bank of England could be forced to delay its rate-cutting cycle, according to City AM.
Economists at Investec estimated the then-current oil price, if sustained, would add around 0.2 percentage points to UK headline inflation through higher petrol prices. A sustained 40 per cent rise in natural gas futures would add a further 0.7 percentage points via household utility bills.
Oil prices rose as much as 13 per cent in a single session as the conflict intensified. Markets moved to strip out their expectation for two quarter-point Bank of England rate cuts by the end of 2026, according to London South East.
Gold fell around 2 per cent on the day and was down nearly 10 per cent over the week, as rising yields reduced the appeal of non-yielding assets, Business Matters Magazine reported.
UK gilts have been harder hit than US Treasuries or European government bonds, reflecting thinner liquidity in the domestic market, according to Professional Pensions.
The Strait of Hormuz remains the central flashpoint. Control over the waterway was among the unresolved points in the MoU negotiations before the ceasefire collapsed. With CENTCOM now enforcing a naval blockade and Trump signalling he has abandoned dealmaking, the 60-day window for a final agreement is effectively spent, leaving energy markets exposed to further escalation.
