UK bond yields dip on hopes for de-escalation of Middle East war

LONDON, March 4 (Reuters) - British government bond yields edged down on Wednesday after rising sharply over the previous two days as investors turned more hopeful that the conflict in the Middle East could de-escalate soon and ease the risk of a fresh jump in inflation.

Yields on two-year gilts GB2YT=RR, which are ⁠sensitive to the outlook for Bank of England interest rates, fell by more than 4 bps to 3.688% at 1314 GMT, having leapt by around 20 basis points on Tuesday. They were almost flat at 1419 GMT.

Euro zone yields were as much as 5 bps lower and U.S. yields were flat on the day.

Brent crude oil prices fell 0.6% to $80.90 per barrel after the New York Times said Iran made indirect contact with the United States a day after the conflict started in a bid to negotiate an end to the war. Scepticism remained about whether U.S. President Donald Trump's administration or Iran was prepared for a near-term de-escalation, the NYT said.

Longer-dated British borrowing costs also fell, with the 10-year yield GB10YT=RR down 2 bps to 4.444%, while 30-year yield GB30YT=RR was around 1 bps lower at 5.161%.

Investors were fully pricing in one quarter-point reduction in borrowing costs by the BoE during 2026.