DATA & FIGURES
The yield on the UK's 10-year government bond has climbed by as much as 7 basis points, topping 5% for the third time since the Iran war began. Brent crude has surged more than 9% in a single session, its biggest daily gain since May 2020. The 10-year US Treasury yield has also climbed more than 5 basis points over Monday.
THE SCENARIO
The collapse of the Iran ceasefire has led to a significant escalation of tensions in the region, with the US and Iran exchanging strikes for a third successive night. This has caused a surge in oil prices, with Brent crude jumping more than 9% in a single session. The increase in oil prices has, in turn, led to a rise in borrowing costs, with the yield on the UK's 10-year government bond climbing by as much as 7 basis points.
DIRECT QUOTE
"Since the start of the Iran War, UK gilts have been especially volatile and the last couple of days have seen outsized movements in UK gilts." — Daniel Mahoney, Senior UK Economist at Handelsbanken
BBN INSIGHT
The surge in UK borrowing costs poses a significant challenge to the incoming Prime Minister Andy Burnham, as it will increase the cost of borrowing for the government and potentially limit its ability to implement new policies. On the positive side, the increase in oil prices could lead to increased revenue for oil-producing countries, which could have a positive impact on their economies. However, the negative side is that the increase in oil prices could lead to higher inflation, which could have a negative impact on consumers and businesses. The Bank of England may also raise interest rates to combat inflation, which could have a negative impact on the economy.
MARKET REACTION
The yield on the UK's 10-year government bond has climbed by as much as 7 basis points, topping 5% for the third time since the Iran war began. The 10-year US Treasury yield has also climbed more than 5 basis points over Monday. Brent crude has surged more than 9% in a single session, its biggest daily gain since May 2020.