The UK gilt market plunged deeper into crisis on Monday as traders pushed yields to their highest levels since 2008, betting the Bank of England will raise interest rates four times this year. The 10-year gilt yield climbed 0.06 percentage points to 5.05 per cent, extending a 0.8 percentage point surge since the Middle East conflict began.

Traders in the swaps market now fully price in four quarter-point rate hikes by the BoE, up from three last week and a stark reversal from expectations of two cuts before the conflict. The two-year yield rose 0.08 percentage points to 4.65 per cent, reflecting heightened sensitivity to rate expectations. Analysts warn surging energy prices could trigger stagflation, preventing the BoE from cutting rates to support the economy.

Market experts called the moves 'excessive,' with MUFG's Derek Halpenny saying four rate hikes were 'way overdone.' Aegon Asset Management's Stephen Jones described gilts as suffering from an 'unholy trinity' of stagflation, fiscal slippage, and volatile positioning. The rout has pushed gilts toward their worst monthly performance since the 2022 'mini-budget' crisis, as investors worry about rising borrowing costs and energy shock protections straining UK public finances.