UBS indicated that despite a recent rise in short-term yields influenced by the Middle East conflict, the next policy action from the Federal Reserve and the Bank of England is still likely to be a rate cut.

UBS strategist Mustafa Oguz Caylan wrote in a report, "We believe the Fed and the Bank of England are more likely to delay rate cuts toward a neutral level this year, rather than raising rates."

The report added that it is difficult to determine how much of the fluctuation in short-term yields is due to expectations of policy tightening, and how much is due to investors demanding higher risk premiums because of geopolitical uncertainty.

The report noted that UBS's term structure model suggests both the Fed and the Bank of England still lean toward cutting rates, with market expectations for policy easing being stronger in the UK.