Oil prices declined on Thursday despite ongoing military tensions in the Middle East following recent U.S. strikes on Iranian targets. The downward pressure on crude came after President Donald Trump indicated that last month’s ceasefire was effectively over, prompting renewed U.S. military actions against Iran in the early hours of the day. In response, Iran launched missile and drone attacks targeting U.S. bases in Kuwait, Bahrain, and Qatar.

Brent crude, the global benchmark for oil, dropped 1.3 percent to approximately $77 per barrel, retreating from a two-week high above $80 reached on Wednesday. Similarly, West Texas Intermediate (WTI), the U.S. oil standard, fell 1.6 percent, settling near $72.53 per barrel.

Despite the military escalation that has intensified hostilities dating back to February, government bond markets reversed much of Wednesday’s losses as investors bet that the conflict would not derail the prospects for a peace deal that could restore stable oil flows through the Strait of Hormuz.

Mohit Kumar, chief European economist at Jefferies, suggested that both the U.S. and Iran are unlikely to escalate into a full-scale war and anticipated that “cooler heads will prevail.” Kumar also expressed optimism about short-term government bonds, expecting yields to decline further amid easing inflation concerns.

Ten-year government bond yields reflected this cautious optimism, with U.K. gilts dropping 0.07 percentage points to 4.91 percent, the 10-year U.S. Treasury yield dipping 0.02 points to 4.55 percent, and German government bonds declining 0.04 points to 3.05 percent. Since bond yields move inversely to prices, these falls indicated increased bond buying.

Equity markets reacted positively to the easing in oil prices. By midday trading in New York, the S&P 500 increased 0.6 percent, while the Nasdaq Composite advanced 0.8 percent. Asian markets were broadly higher as well, with South Korea’s Kospi rising 1 percent and Japan’s Topix gaining 0.4 percent. In Europe, the Stoxx Europe 600 and Germany’s DAX indices each climbed 0.8 percent, although the UK’s FTSE 100 edged down 0.2 percent, hindered by a 6.2 percent drop in AstraZeneca shares following disappointing results from a heart treatment trial.

Analysts from UBS raised their year-end target for the Stoxx Europe 600, citing stronger-than-expected corporate earnings in the region. Currency markets saw modest gains for the euro and British pound, which strengthened 0.2 percent and 0.1 percent against the U.S. dollar respectively, with the euro reaching $1.143 and the pound at $1.34.