Global short-term interest rates have surged sharply in the US, Europe, and UK, reflecting deepening fears that the Middle East conflict will disrupt oil supplies and trigger inflationary spillovers. A 0.44% spike in UK 10-year break-even inflation since February 27 signals growing investor anxiety about second-order effects from the oil crisis. This pattern, while expected given differing economic vulnerabilities, highlights a significant disconnect between market expectations and central bank caution. Investors, increasingly hawkish, are pricing in a potential tightening cycle, while major central banks remain cautious, waiting for clearer evidence before adjusting policy.

This divergence raises critical questions about whether rate expectations have become overly aggressive or if bond markets at the short end are significantly oversold.