Global bonds rose as speculation about a possible peace agreement between the US and Iran pushed oil prices lower, reducing bets on interest rate hikes as inflation expectations eased.

The yield on the 10-year US Treasury fell by as much as 9 basis points to 4.34%, while the equivalent German yield dropped by 7 basis points. UK government bonds (gilts) led the rally, with the 30-year yield retreating from the highest level it had reached since 1998. Traders scaled back bets on monetary tightening by the Federal Reserve and major European central banks, as oil prices recorded a significant decline.

The rally in bond markets followed a report by Axios, according to which the US and Iran are close to a one-page memorandum (memo) to end the war. At the same time, the news outlet noted that nothing has been finalized and that the US is awaiting Iran’s response.

As reported by Bloomberg, UK debt markets have been hit harder than others during the Middle East crisis.

The UK relies heavily on energy imports, making it vulnerable to the “double hit” of higher inflation and slower growth due to persistently rising oil prices. Additionally, Thursday’s local elections have brought the UK’s turbulent political landscape into focus, with Prime Minister Keir Starmer facing challenges to his leadership.

A lasting peace agreement between the US and Iran could improve the economic backdrop for Starmer, according to Nicholas Trindade, senior portfolio manager at BNP Asset Management.

“If the conflict is resolved before the next Bank of England (BOE) meeting, then I believe the central bank may adopt a wait-and-see stance throughout 2026,” he said. Trindade holds short-term UK bonds, which he says offer protection against political noise ahead of the vote.

Pooja Kumra, UK and Europe rates strategist at Toronto Dominion Bank, recommends buying 10-year gilts at current levels, noting that most of the risk surrounding the local elections has already been priced in.

Oil is falling for a second day, as US President Donald Trump said that “Great Progress” has been made toward a deal to end the war with Iran. Meanwhile, China’s Foreign Minister Wang Yi urged Iran to continue negotiations to achieve a lasting ceasefire with the US, as he hosted Tehran’s top diplomat just days before Trump’s scheduled visit to Beijing.