UK government borrowing costs hit 5% as Iran war fuels bond market sell-off

UK 10-year gilt yields jumped 13bp to 5.081%, the highest since the 2008 financial crisis, as the Iran war triggered a broad global bond sell-off and investors priced in a sharper inflation shock from elevated energy prices. Brent crude held above $110/bbl, while markets also pushed higher borrowing costs in the US and eurozone as confidence in a near-term de-escalation faded. For precious metals, the mix is supportive on a risk-off and inflation-hedge basis: higher inflation expectations, geopolitical stress, and weaker confidence in central banks’ ability to contain second-round effects all tend to underpin gold. The UK was singled out as especially vulnerable given its trade and energy sensitivity, and traders are now pricing at least two Bank of England rate rises in 2026, even as growth and labor-market momentum soften. Near term, gold is likely to remain tightly linked to oil, front-end rate expectations, and headline risk around the Middle East conflict. If energy prices stay elevated and gilt yields continue to climb on inflation fears, the market should keep a bid under bullion; however, any credible ceasefire/de-escalation would likely unwind some of the defensive bid quickly.