Leading Indicators | Relief, not reversal: Markets reprice on US-Iran deal

Oil risk premium unwinds as supply fears ease

Oil prices have moved lower as markets price in reduced disruption risk following the US-Iran agreement. Brent is now trading at around $80 per barrel, its lowest level since March, with WTI at roughly $77. The move reflects expectations that flows through the Strait of Hormuz will resume, albeit gradually rather than returning to normal immediately. The key risk now is whether the agreement holds, and supply constraints continue to ease.

Risk easing feeds through to lower gilt yields, though domestic risk remains priced in  

On the back of this, UK gilt yields have also moved lower, with the 10‑year yield at c.4.8%, its lowest level since April and down from the peak above 5% seen in May. Shorter‑dated yields have followed, with both 2 and 5‑year rates also declining. The move reflects a partial unwind of the recent risk premium, although yields remain somewhat elevated, suggesting a degree of domestic political risk is still being priced in.

BoE expected to hold as policy caution persists

The BoE is expected to hold rates at 3.75% at tomorrow’s meeting, with policymakers likely to take a cautious approach in the face of renewed inflation risks. While the ECB has moved to tighten policy, the UK is already operating from a more restrictive starting point and domestic conditions remain softer, particularly in the labour market. Inflation pressures are likely to pick up in the near term but are not expected to become entrenched via second‑round effects. As such, we expect the BoE to remain on hold throughout 2026.