UK government bonds slide

23rd Mar 2026 09:40

(Sharecast News) - Gilts whipsawed amid extraordinarily volatile trading on Monday, hitting record highs before plunging after Donald Trump announced an apparent five-day pause on US attacks on Iranian energy infrastructure.

Ten-year gilts reached levels not seen since 2008 at the start of morning trading Monday, on fears that the crisis in the Middle East would led to a prolonged global economic shock, including soaring energy prices, resurgent inflation and higher interest rates.

Over the weekend, Trump had threatened to attack Iran's energy facilities if it did not reopen the Strait of Hormuz by the start of this week. Tehran responded by saying it would target critical infrastructure across the entire region.

That apparent escalation sent yields soaring, and by mid-morning on Monday, 10-year UK government bonds had risen to 5.079% while prices fell. Yields move inversely to prices in bond trading.

Energy prices also soared, while equities and safe-haven assets plunged.

However, Trump then announced mid-morning that the US and Iran had in fact had "over the last two days, very good and productive conversations regarding a total resolution of our hostilities in the Middle East".

In a social media post written entirely in capital letters, he continued: "Based on the tenor and tone of these in depth, detailed and constructive conversations, which will continue through the week, I have instructed the Department of War to postpone any and all military strikes against Iranian power plants and energy infrastructure for a five-day period, subject to the success of the ongoing meetings and discussions."

Iran remained defiant, with state media denying talks were going on. According to NBS, the semi-official Mehr news agency said: "Iran's warnings about a swift and powerful response to any potential strike on its energy facilities led Trump to back down."

However, that did not stop the gilt markets reversing earlier positions, and by noon yields were trading at around 4.8%. Two hikes were also being priced in for 2026 on the swaps market, down from the four being forecast at the start of the day.

Oil prices also retreated, while equities and gold soared.

Neil Wilson, Saxo UK investor strategist, said Trump's latest comments triggered more questions, however. "Can we believe that it's this easy to end the conflict? Is Iran seeking a way out or do they want to continue asymmetric warfare for months? Can the US stop Israel?

"Right now, my thinking is Trump has looked at the markets this morning and said anything to walk back from the 48 hour ultimatum issued on Saturday without losing face. A classic TACO."

TACO is an acronym for 'Trump always chickens out', a reference to the president tending to pull back on threats or unpopular policies in the face of a prolonged, hostile reaction on the markets.

David Morrison, senior market analyst at Trade Nation, called it "one of the most extraordinary market turnarounds in recent history".

He continued: "It is difficult to know how seriously to take this latest interjection from Trump. It certainly doesn't make trading any easier. But that's a risk with wars, particularly when there's chaotic and mercurial leadership on both sides.

"The lack of any clear, achievable war aims meant that Trump could walk away, claiming victory, at any point. That appears to be what he's doing now. Unfortunately, the latest spin from Tehran is: 'Trump backs down...after Iran's sharp warning.' He's not going to like that."

At the start of 2026, it was widely accepted that the Bank of England would continue cutting the cost of borrowing, as it sought to boost economic growth as inflationary pressures waned. Most analysts had forecast the first cut to be announced at the Monetary Policy Committee's March meeting.

However, following the outbreak of war and the ensuing spike in gas and energy prices, the central bank opted to leave Bank Rate at 3.75% last week. It also confirmed it "stands ready" to tackle any spike in inflation.