Global bond rout deepens as UK 30-year borrowing cost reaches 6%
Long-term borrowing costs climbed across major markets as investors worried about inflation, oil prices and the scale of government borrowing. Britain’s 30-year bond yield reached 6%, its highest level since 1998, while shares fell in London and other European markets during Thursday trading.
Global bond markets came under renewed pressure on Thursday, with investors concerned that inflation and government borrowing could keep interest rates high for longer. Britain’s 30-year bond yield reached 6% during morning trading, the first time it had reached that level since 1998. The increase raised the government’s long-term borrowing costs and added pressure on Chancellor John Healey ahead of the budget later this month.
Yields on five- and 10-year UK government bonds also rose. Bond yields move inversely to prices, so the increase indicated that investors were demanding higher returns to hold the debt. Equity markets were affected by the sell-off.
London’s stock market fell 1.7% in early trading, while Germany’s Dax and France’s CAC 40 each declined by 1.1%. Neil Wilson, a strategist at Saxo UK, described the market conditions as severe and said the bond rout was prompting investors to reduce risk. The pressure followed concerns that high oil prices, linked in the source material to continuing conflict in the Middle East, could fuel another round of inflation.
US 10-year Treasury yields reached their highest level since 2002 on Wednesday, while Japan’s 10-year yield moved towards a 30-year high recorded the previous month. US bonds weakened even though recent inflation data came in below forecasts. Investors remain concerned that the US Federal Reserve could keep raising interest rates or hold them at elevated levels to contain inflation.
Mohit Kumar of Jefferies said worries about inflation, deficits and the volume of new debt issuance were weighing on the market. Axel Rudolph of IG said lower expectations of an October US rate increase had not removed concerns that persistent inflation and higher oil prices could keep borrowing costs high. The dollar rose to a three-month high, while expectations of a possible December rate increase continued to pressure bonds.
This independently written report is based on information supplied by the named publisher. Vertrix News has not independently verified the source report.