UK 30‑yr bond yield hits 5.77%, highest since 1998, amid Middle East war energy shock

The yield on 30‑year UK government bonds rose to its highest level since 1998, surpassing 5.77 % on Tuesday. The increase followed a broader rally in international bond markets that began on Monday, a UK public holiday, as investors reacted to heightened energy prices linked to the conflict in the Middle East.

The surge in UK gilt yields also reflects domestic political concerns. Market participants anticipate that the Labour Party, led by Prime Minister Keir Starmer, could suffer significant setbacks in Thursday’s local elections. “There is some catch‑up in the UK market after yesterday’s holiday,” said Jane Foley, head of foreign exchange strategy at Rabobank. “While the move in the market appears to be primarily driven by fears of rising hostilities in the US‑Iran war, the UK is facing domestic political risks in the form of this week’s election.”

Betting markets further underscore political uncertainty. Odds suggest a high probability that Prime Minister Starmer will be replaced before the end of the year, with a left‑wing candidate viewed as the most likely successor. Foley noted that such a scenario could create headwinds for UK asset markets.

The rise in long‑term gilt yields comes as global investors reassess risk amid escalating geopolitical tensions and volatile energy markets. Higher yields increase borrowing costs for the UK government and can influence mortgage rates and corporate financing. The movement also aligns with a broader sell‑off in equities and a decline in oil prices observed earlier in the week, as traders weighed the prospects of a US‑Iran ceasefire.

Analysts will watch the outcome of the local elections for clues about the UK’s political trajectory and its impact on fiscal policy. In the meantime, the bond market is likely to remain sensitive to both geopolitical developments in the Middle East and domestic political dynamics.