The afterglow from the U.S.-Iran deal collided with fresh inflation fears across three markets Friday, as the yield on 10-year U.K. gilts jumped more than 8 basis points to 4.8394 percent on Andy Burnham's by-election win, the Japanese yen broke past 161 against the dollar despite $72.8 billion in Tokyo intervention, and at least 20 oil tankers crossed a toll-free Strait of Hormuz.

A reopened Hormuz is pulling Brent lower and easing the energy shock that has propped up the dollar. That disinflation tailwind is meeting country-specific political risks that argue the other way, and government-bond desks in London and Tokyo are absorbing the difference.

What shifted in London

Burnham, Labour's former Greater Manchester mayor, defeated Reform U.K. by more than 9,000 votes in Makerfield, taking nearly 55 percent of the vote and clearing the path to challenge Prime Minister Keir Starmer as soon as next week. He needs at least 81 Labour lawmakers to trigger a leadership contest.

The gilt market reacted before the speeches ended. The 10-year yield climbed more than 8 basis points to 4.8394 percent, with the two-year and 30-year tenors also higher. The move landed the same morning the Office for Budget Responsibility reported a May budget deficit of £23.3 billion, or $30.8 billion, the highest reading for that month in six years and well above the £18.9 billion economists had forecast.

Kallum Pickering, chief economist at Peel Hunt, said Burnham was unlikely to scrap Labour's fiscal rules outright but that gilt investors would still demand compensation for the policy uncertainty. "I'm expecting to see some inflation premium," Pickering told CNBC. Matthew Ryan, head of market strategy at Ebury, was blunter. "There's very little fiscal headroom, there's very little wiggle room for the government at the moment," he said, flagging the Autumn Budget as the next test. "We do see some more downside on U.K. assets."

On the yen desk

Tokyo has now spent more than 11.7 trillion yen, or $72.8 billion, in foreign reserves defending the currency between April and May, and the Bank of Japan on Tuesday raised its policy rate to a 31-year high. The yen still slid past 161 against the dollar late Thursday, extending the fall to 161.80 and putting it within striking distance of 161.96, the level that would mark the weakest reading since 1986.

The spread the BOJ cannot close on its own is what is holding the yen down. The 10-year Japanese government bond yields 2.64 percent against 4.451 percent on the 10-year U.S. Treasury, wide enough to keep the carry trade running. Masahiko Loo, senior fixed income strategist at State Street Investment Management, called the BOJ hike little more than a "Band-Aid on a bullet wound" for the yen. Repeated warnings from Finance Minister Satsuki Katayama that Tokyo was "prepared to take decisive action on speculative moves" have, in Loo's reading, blunted any shock value: "Policymakers have telegraphed their warning so clearly that a preemptive strike might only bring fleeting relief."

The Hormuz offset

The one piece of unambiguously good news for both bond markets sits at the chokepoint. At least 20 oil tankers have crossed Hormuz since Washington and Tehran began reopening the sea lane, according to trade-intelligence firm Kpler, with Thursday's 25 total transits the highest since June 2. The U.S. Navy has lifted its blockade, and Iran is letting ships cross for 60 days without paying tolls. "Traffic was broadly balanced, with 13 crossings moving West to East and 12 moving East to West," said Matt Smith, Kpler's commodity research director. Vice President JD Vance said the Iranians so far "are honoring their end of the commitment."

The counterpoint

Friday's reporting drew solely on center-leaning wires; partisan readings of Burnham's politics and the Takaichi government's reflationary tilt were not represented in the source set. Pickering cautioned that sterling could move in lockstep with the gilt selloff, warning of an "unfortunately all-too-familiar situation in the U.K. where bad policies push up interest rates and push down sterling."

The Autumn Budget is the next dated event for the gilt market. For the yen, the next test is whether Katayama returns to the market before traders force her hand. The 60-day toll-free window at Hormuz ends in mid-August, when Iran, Oman and the Gulf states are scheduled to begin talks on how the strait will be governed thereafter.