SECURITY: US Rejects 'Quid Pro Quo' w/Russia Over Iran/UKR Intelligence Sharing

A fairly sedate session for gilts, with futures sticking within the range defined over the past couple of sessions and failing to threaten anything like a full closure of yesterday’s labour market-driven opening gap higher during sell offs.

• Futures -1 at 92.20.
• The bullish technical theme has developed further in recent sessions. Yesterday’s high (92.36) presents the initial upside target, followed by the January 19 top (92.51). Initial support is located at the Feb 16 low (91.67).
• Quarterly futures roll activity has started to tick over, with ~16.3K trading in the spread book and further activity being conducted via legs. H6 goes first notice on Thursday February 26.
• Yields within 1bp of yesterday’s close. Yesterday’s lows remain intact across benchmarks.
• 2s10s steadies just below 80bp after a pullback from the 90bp close seen early last week.
• BoE-dated OIS prices ~20bp of easing for next month, 24bp through April, 33.5bp through June and 49bp through year-end. ’26 meeting pricing little changed to ~1bp more dovish on the day.
• A reminder that we don’t think that today’s CPI data is a gamechanger for BoE policy, the market seems to agree.

The implied probability of a US military strike on Iran has spiked amid reports that the US is continuing to surge military assets to the Middle East. According to Polymarket, the probability of a strike by March 31 has spiked to 60%. The probability of a strike rises to 75%, by the end of December. 

• Much of the speculation may be driven by OSINT accounts on social media and an Axios report suggesting, “The Trump administration is closer to a major war in the Middle East than most Americans realize. It could begin very soon.” 
• Speculation may also be fueled by closer scrutiny of US Vice President JD Vance's comments after yesterday's second round of US-Iran nuclear talks in Geneva. While Vance reiterated that the Trump administration would like to resolve tensions via diplomacy, he noted that "the Iranians are not yet willing to acknowledge" President Donald Trump's 'red lines'.
• Meanwhile, Iran appears to be taking steps to fortify sensitive military and nuclear sites, with some analysts suggesting that Tehran may be prolonging the diplomatic process to allow preparations for a US strike. Reuters reports, "Satellite images show that Iran has recently built a concrete shield over a new facility at a sensitive military site and covered it in soil..."
• A second US aircraft carrier fleet, the USS Gerald Ford, was recently sighted off the coast of Morocco, suggesting it will arrive in the Middle East theatre by Sunday. When the Ford arrives, the US military will be fully mobilised for offensive and defensive operations, including countering a potential Iranian retaliation on Israel and US bases in the region.

Figure 1: US Strike on Iran by March 31, 2026

Source: Polymarket

PM Mark Carney posts on social media that Matt Jeneroux, MP for Edmonton Riverbend, who left the Conservative caucus in November 2025 ostensibly intending to resign as an MP, has instead crossed the floor and joined the PM's centre-left Liberals. Jeneroux is the third MP from the centre-right Conservatives to join the Liberals since the April 2025 federal election, after Michael Ma and Chris d’Entremont late last year. 

• Jeneroux's joining the Liberals gives the governing party 169 seats in the House of Commons. Three of the 343 seats in the Commons are currently vacant and awaiting by-elections. All were previously held by Liberal MPs.
• Two of the ridings, University-Rosedale and Scarborough Southwest, are safe Liberal ridings, while Terrebonne was won from the sovereigntist Bloc Québécois by the Liberals in the 2025 election after being held by the Bloc since its creation in 2015.
• Dates have not yet been set for any of these by-elections. The University-Rosedale vote can take place no later than 24 August, Scarborough Southwest between 23 March and 14 September, and Terrebonne between 6 April and 28 September.
• With Jeneroux's defection, if the Liberals can win all three by-elections, it would lift the party's total in the Commons to 172, an outright majority of one seat.