Global bond markets are tightening as worries mount over the US deficit’s sustainability, pushing UK long-term borrowing costs to their highest level in 28 years.
Persistent oil price increases have revived inflation fears, leading investors to anticipate central bank rate hikes to stop price gains from becoming entrenched.
During Thursday’s volatile trading session, the yield on Britain’s 30‑year government bonds climbed to 6%, a level not seen since 1998.
Yields on UK five‑ and ten‑year bonds also rose, increasing the government’s financing costs and adding pressure on Chancellor John Healey ahead of the upcoming budget.
The sell‑off lifted US borrowing costs to a 24‑year peak, with the 10‑year Treasury yield reaching 5.34%.
Thirty‑year US Treasury yields exceeded 5.67%, marking their highest point since May 2002.
Equity markets reacted sharply: the FTSE 100 fell 1.7% in early London trade, while Germany’s DAX and France’s CAC 40 each dropped about 1.1%.
Neil Wilson, Saxo UK’s investment strategist, remarked, “The bond market turmoil is spilling over into equities, prompting investors to seek refuge.”
By midday UK time, the pressure eased, pulling the 30‑year yield back below 6% and allowing equities to recover from their lows.
Later in the afternoon, yields resumed their ascent, pushing once again above the 6% threshold.
The global bond sell‑off is fueled by inflation concerns, exacerbated by Middle East tensions that continue to constrain oil supplies.
Japan’s 10‑year yield edged upward, approaching the 30‑year peak reached last month.
US bond prices fell even though Wednesday’s inflation data came in below forecasts, a development that had been expected to ease concerns about further Federal Reserve rate increases.
Market participants remain wary that the Fed will continue tightening policy to combat inflation, citing robust US economic growth and potential wage pressures.
Jefferies economist Mohit Kumar warned that rising government debt issuance to finance deficits, together with inflation worries, is weighing on bond markets.
He added, “Inflation, deficit and issuance pressures continue to drag on bond demand.”
“A buyers’ strike is emerging as investors hold off until stability returns; hedge funds, bruised by the recent sell‑off, lack the risk appetite to counter the move, while longer‑term investors may step in only after conditions calm.”
Axel Rudolph, chief technical analyst at trading platform IG, said: “Although the latest data has lowered the odds of an October Fed rate hike, fears of stubborn inflation and higher oil prices could keep rates elevated for an extended period.”
He continued, “The dollar is gaining on this caution, reaching a three‑month high, while the prospect of a December rate increase maintains pressure on bond markets.”