UK Gilts Recover as Energy Prices Ease

UK gilts have regained their footing after a recent slump, with the 10-year gilt yield dipping below 5.2% from its peak of 5.29% on Wednesday.

The decline in energy prices has helped alleviate concerns about inflation, prompting markets to slightly revise their expectations for Bank of England rate hikes.

Brent crude retreated from six-week highs, while natural gas prices eased from January's levels following US President Donald Trump's comments that the military campaign in Iran would not last long.

Despite this, gilt yields remain elevated due to ongoing concerns about energy-driven inflation, higher interest rates, and fiscal sustainability in the UK. Prime Minister Andy Burnham has attempted to reassure markets of the government's commitment to fiscal discipline, but these concerns persist.

Markets are now fully pricing in a Bank of England rate hike by year-end, with another increase expected by March 2027.