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Benchmark 10-year gilt yields were 8 basis points lower on the
day at 1.40% at 1223 GMT and earlier in the day fell as low as
1.375%, as prices rose in line with German Bunds and slightly
lagged behind U.S. Treasuries.
Ten-year gilt yields last fell more on Nov. 26, when they
dropped 14 basis points on the day due to concerns about the
Omicron variant of coronavirus.
"Inflation in the UK will now probably rise beyond the 7.5% peak
we had expected in April and will remain higher for longer,"
Thomas Pugh, economist at accountants RSM UK, said.
Russia and Ukraine account for a quarter of world wheat exports
and the conflict risked pushing up food prices in Britain, he
added.
"All this will exacerbate the cost of living crisis and depress
GDP growth," he said.
Two-year gilt yields, which are sensitive to interest-rate
expectations, dropped 7 basis points on the day to 1.24% and
earlier touched their lowest since the BoE's last policy
statement Feb. 4 at 1.199%.
Financial markets still expect the BoE to raise interest rates
again after its next meeting ends on March 17, taking the Bank
Rate to 0.75% from 0.5%.
"The conflict will not derail plans for policy tightening this
year, but the events of the past 24 hours have tipped the
balance towards erring on the side of caution," Capital
Economics said in a note.
"The risks are greatest for the euro-zone because of its closer
ties to Russia."
As tensions between Russia and Ukraine have increased in recent
days, markets have scaled back their expectations of how high
rates will rise this year to 1.75% from around 2%, and see less
chance of a half-point rate rise at future BoE meetings.
(Reporting by David Milliken; editing by William James and Frank
Jack Daniel)
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