# Middle East and rising oil prices are running the show in the rates markets

By Bryn Jones — 2026-08-11

Bryn Jones, head of fixed income at Rathbones Asset Management, said: “Once again, the Middle East and rising oil prices are running the show in the rates markets. After Iran demanded tolls, and US and Israel were punished financially for using Strait of Hormuz last week, now the Trump tit for tat is suggesting that Iran needs to compensate for causalities and for years of Iran-backed conflict.

“With no deal emerging to reopen the Strait of Hormuz, Brent rose to $87 overnight, once again highlighting energy-driven inflation concerns and reviving the question of whether the Fed may still need to tighten later this year. Trump signalled a preference for sustained economic pressure over fresh strikes to force a reopening of the Strait, framing the US approach as ‘low keying it,’ while Iran reiterated that conditions are not yet in place for free passage. Inflation pressure in Iran is immense, now reportedly running at 100 per cent, and growth has collapsed so the pressure on securing a deal is building on both sides.

“For gilts, poor price action dominated the session, with the UK leading the move lower/yields higher. Part of that reflected the higher correlation to energy, with oil up and UK/European natural gas prices higher again, but it also felt like an unwind of some of the UK’s recent outperformance. Since Bailey’s dovish tone at the MPC, gilts have materially outperformed. Relative performance, versus the US, has further been due to continued pressure on Treasuries as the market deals with the implications of Warsh and broader concerns around Fed credibility.

“So, energy continues to drive the macro narrative. While Iran/Oman negotiations appear to be progressing, markets have become focused on comments suggesting any agreement may not result in an immediate reopening of Hormuz. We are seeing continued vessel incidents and disrupted shipping flows keeping both crude and gas markets well supported, not only in the Strait of Hormuz but also in the Red Sea.”

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