Global bond markets are on track for their worst week in a month as investor concerns mount over a stalemate between the United States and Iran. Yields have increased across major markets, with two-year bond yields in the US, Germany, and the UK set for their largest weekly rises in a month. Since Monday, Treasury two-year yields have climbed by 12 basis points to reach 3.83%, while UK two-year yields have surged by 30 basis points to 4.42%.
Traders are re-evaluating the outlook for interest rates amid escalating tensions in the Middle East. The selloff in bonds reflects growing apprehension that ongoing disruptions to energy supplies could keep inflation rates high, complicating central banks’ efforts to reduce interest rates and possibly necessitating hikes in some cases. Brent crude prices are poised for their largest weekly gain since early in the conflict.
“I do worry that in the coming days the Iranians will really sink their heels in and call Trump’s bluff,” remarked Ariel Bezalel, investment manager for fixed income at Jupiter Asset Management. “We’re taking some profits and reducing a bit of our rates exposure, as well as our credit risk.”
Bezalel indicated he is holding more cash than in recent weeks, cautious that the volatile bond market swings observed in March may return.
Investors have recently questioned whether central banks would follow through on the aggressive tightening priced into the markets. However, the renewed uncertainty surrounding the Iran conflict, coupled with stronger economic data from the UK and US, is making some investors hesitant to challenge the current trajectory of interest rates.
This week, traders increased their bets on interest rate hikes from the European Central Bank, now pricing in 67 basis points of increases for the year, up from 50 basis points previously. For the Bank of England, swaps shifted to indicate pricing of 63 basis points of increases, compared to just 30 basis points on Monday.
In the United States, swaps now suggest that the Federal Reserve is likely to maintain steady policy through the end of the year, having presented a 50% chance of a quarter-point rate cut earlier in the week.
Part of the renewed caution in the bond market may also stem from an upcoming series of central bank meetings next week, where interest rate decisions are anticipated in the US, Europe, Japan, the UK, and Canada.
Wei Li, global chief investment strategist at BlackRock Inc., noted that policymakers face a challenging environment, especially as inflationary pressures were already significant before the onset of the conflict.
“Markets have swung wildly in terms of rates repricing,” she stated in an interview with Bloomberg TV. Even if a resolution between the US and Iran were to occur, “I don’t think we are going back to the previous environment where multiple cuts were on the table.”
For more coverage, visit bloomberg.com.
Published on April 24, 2026.
