Gilt yields jump amid fears of a fresh conflict escalation
Bond market turbulence flared again on Wednesday as fresh attacks on commercial shipping near the Strait of Hormuz rattled investors and pushed UK gilt yields higher in early trading.
Maritime security agencies reported that three cargo vessels were struck by projectiles in separate incidents near or just beyond the Strait, one of the world’s most important oil chokepoints.
Concern over an escalation in the ongoing war and rising oil prices are rattling the UK gilt market. Ten-year bond yields climbed to 4.65%on Wednesday afternoon, up from about 4.49% at the beginning of the day.
And the conflict is also hitting the UK mortgage market, which has seen lenders pull hundreds of deals off the table this week amid rising fears of the war’s economic impact.
One of the ships attacked on Wednesday caught fire and had to be evacuated, while others reported hull damage but no loss of life, according to updates from the UK Maritime Trade Operations (UKMTO) and regional authorities.
Other reporting has identified a Thai‑flagged bulk carrier among the most seriously damaged vessels, with most of its crew rescued to Oman and a small contingent remaining on board.
The attacks come against the backdrop of an intensifying US‑Israel war with Iran that has already seen repeated strikes on shipping and energy infrastructure in and around the Gulf.
Iran’s military leadership has publicly warned that ships and oil cargoes linked to the US, Israel or their allies are now considered legitimate targets in the Strait, underlining the risk that a series of sporadic incidents could evolve into a more sustained disruption of global energy flows.
The combination of genuine supply‑disruption risk and large‑scale emergency stock releases has produced a whiplash effect in oil and, by extension, in inflation expectations. Brent remains roughly 20% higher than it was when hostilities began in late February, even after pulling back from early‑week peaks.
And the prime minister has sounded a stark warning on the war’s potential economic impact, with Keir Starmer noting that a prolonged conflict would likely affect the “lives and households of everybody.”
The conflict has also fueled concerns of global stagflation: rising inflation even while economies stall or regress in 2026.
For now, a timeline on a possible end to the war isn't clear. Yesterday, US defence secretary Pete Hegseth signalled a ramping-up of military activity, seemingly contradicting earlier comments by Donald Trump that an end could be in sight.
On Wednesday, Trump told Axios there was "practically nothing left" to target in Iran, raising further questions about whether he could be eyeing an off-ramp in the conflict.
