Energy crisis triggers interest rate hike panic, UK 10-year bond yield hits new high since 2008.

Due to the surge in energy costs, traders have increased their bets on the Bank of England raising interest rates within the year, with the UK government borrowing costs hitting their highest levels since 2008. The benchmark 10-year government bond yield briefly rose 10 basis points to 4.94%, reaching a new high since the global financial crisis nearly twenty years ago. On Friday, shorter-term bond yields saw even more significant increases. Concerns in the bond market are stemming from the impact of rising energy prices due to the Middle East conflict, which may force policymakers to raise borrowing costs to control inflation. The Bank of England's Monetary Policy Committee, with all nine members, unanimously voted on Thursday to maintain the benchmark interest rate at 3.75%, with Bank of England Governor Andrew Bailey warning that policies must respond to "the risks of more persistent impacts on UK CPI inflation." James Ash, fund manager at Marlborough Investment Management, stated: "In an environment of rising inflation expectations and with the Bank of England already leaning towards a hawkish stance, bond investors are least willing to see the government weaken fiscal constraints in such a weakened position." He added: "The market is struggling to find direction, with volatility and correlations all over the place, which is to be expected in the face of shocks and high levels of uncertainty." On Friday, traders further increased their bets on the extent of interest rate hikes by the Bank of England within the year, with current market pricing showing an increase of 87 basis points for the whole year. This is equivalent to three 25 basis point rate hikes, with around a 50% probability of a fourth hike. This starkly contrasts with the widely held expectation in the market three weeks ago that the Bank of England would cut rates at this week's meeting due to a weak labor market. Short-term bonds were hit hard in this round of selling, with the two-year government bond yield rising by one percentage point since the end of February when the conflict broke out. On Friday, this yield rose another 13 basis points to 4.53%. Brent crude oil rose by 1.6% on Friday, breaking through $110 per barrel.