Unhedged The rout in UK and European bonds
58 snips
Mar 26, 2026 
Ian Smith, senior markets correspondent at the Financial Times, covers UK and European bond turmoil. He talks about what drove the sharp gilt sell-off and how interest-rate expectations shifted. He explains why gilts were hit hardest and the role of leveraged hedge fund trades. He outlines the wider impact on long-term borrowing costs and why everyday borrowers should care.
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Bond Rout Driven By Inflation Shock
- UK and European government bonds plunged because markets are pricing a big inflation shock from the Middle East conflict.
- Short-term inflation expectations rose with oil and gas, forcing markets to abandon bets on imminent central bank rate cuts.
Markets Switched From Cuts To Hikes Fast
- Yields spiked as markets shifted from expecting rate cuts to pricing hikes across the Bank of England, ECB and even the Fed.
- Two-year gilt yields rose almost one percentage point to around 4.4% as short-term rate expectations re-priced.
Hedge Fund Leverage Amplified The Move
- Hedge funds' leveraged, short-term trades amplified the sell-off by getting stopped out and forcing exits that pushed yields higher.
- Trades like steepeners and options betting against hikes were particularly loss-making and exacerbated moves.