UK bond yields decline as surging oil prices and growth concerns offset each other

⑴ UK government bond yields fell across the board on Monday, with yields on various maturities down about 4 to 6 basis points, in line with US and German bonds. This occurred despite the US increasing troops in the Middle East and Yemen’s Houthi forces continuing to attack Israel, which has kept oil prices elevated. ⑵ Brent crude oil prices have risen 58% cumulatively in March, surpassing the single-month increase seen during Iraq’s 1990 invasion of Kuwait. The market is concerned that Houthi forces may attempt to restrict shipping through the Red Sea, a key chokepoint for Middle Eastern oil trade outside of the Strait of Hormuz. ⑶ Interest rate futures indicate that the market expects the Bank of England to raise rates two to three times this year, by 25 basis points each time. However, most economists surveyed this week believe the central bank will keep rates unchanged, as obstacles to economic growth offset the inflation risks brought by higher oil prices. ⑷ UK Prime Minister Starmer will meet with energy industry leaders on Monday. The market is also watching how the evolving geopolitical situation will further impact energy supply, and how the balance between growth prospects and inflation pressures will play out.