The UK 10-year gilt yield jumped 16 basis points to about 4.722%, the highest level in five months, as investors sharply revised expectations for Bank of England interest rates following the surge in global energy prices. Oil has climbed above $100 per barrel as escalating tensions in the Middle East disrupted supply and halted shipping through the Strait of Hormuz. Because the UK is highly sensitive to energy costs feeding into inflation, markets quickly shifted their rate outlook. Only a week ago, investors expected around two rate cuts from the Bank of England this year, but those expectations have been reversed. Traders briefly priced in as much as 16 basis points of rate increases by year-end, instead of the 8 basis points of cuts expected previously. Markets now see a meaningful chance of a rate hike later this year and roughly a 20% probability of a hike as early as June.

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