Global bond markets are heading for their worst week in a month as investors grow increasingly uneasy about a stalemate between the US and Iran.

Yields climbed across major markets this week, with those on two-year US, German and UK bonds heading for the biggest weekly increases in a month. Treasury two-year yields have risen 12 basis points since Monday to 3.83%, while UK two-year yields have risen 30 basis points to 4.42%.

Traders are reassessing the outlook for interest rates in the face of renewed tensions in the Middle East. The bond selloff reflects mounting concern that prolonged disruption to energy supplies will keep inflation elevated, hindering the ability for central banks to lower interest rates, and potentially even requiring some to hike. Brent crude prices are on track for their biggest weekly gain since the first week of the conflict. 

“I do worry that in the coming days the Iranians will really sink their heels in and call Trump’s bluff,” said 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 says he’s holding more cash than he has done in recent weeks, nervous that wild bond-market swings seen in March will return.

Investors have questioned in recent weeks whether central banks would deliver on the aggressive tightening priced by markets, but renewed uncertainty over the Iran war, as well as some stronger data in the UK and US, is making some reluctant to challenge that rates view.

Traders added to bets on interest-rate hikes from the European Central Bank this week, pricing 67 basis points of increases this year, up from 50 basis points. For the Bank of England, swaps moved to price 63 basis points of increases, compared to 30 basis points on Monday.

Meanwhile in the US, swaps now imply the Federal Reserve is likely to keep policy steady through year-end, having indicated a 50% chance of a quarter-point cut at the start of the week.

Part of the renewed caution in the bond market may also stem from the slate of central bank meetings next week, with interest-rate decisions due in the US, Europe, Japan, UK and Canada. 

Wei Li, global chief investment strategist at BlackRock Inc., says policymakers are facing a challenging backdrop, given inflationary pressures were already uncomfortable prior to the start of the conflict.

“Markets have swung wildly in terms of rates repricing,” she said on Bloomberg TV. Even if there’s a resolution between the US and Iran, “I don’t think we are going back to the previous environment where multiple cuts were on the table.”

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Published on April 24, 2026