The yield on Britain’s 30-year gilts has reached 6% for the first time since 1998, as another bout of turmoil in global bond markets drives up government borrowing costs.
Bond prices are falling, which pushes up the yield, or rate of return, on the debt. The yield on shorter-dated UK bonds is also rising, which will increase London’s borrowing costs and add pressure on chancellor John Healey ahead of the budget later this month.
Global bond sell-off continues
The bond sell-off is being driven by fears of high inflation, as the Middle East conflict continues to restrict oil supplies from the region. Last night, US 10-year Treasury yields hit their highest level since 2002, and earlier today Japan’s 10-year bond yield rose towards the 30-year high set last month.
US bonds weakened despite a lower-than-expected US inflation reading yesterday, which could have calmed investors’ nerves. Instead, traders remain anxious that the US Federal Reserve will continue to raise interest rates to fight inflation.
Market reaction
Axel Rudolph, chief technical analyst at investing and trading platform IG, said: “US bond yields are refusing to budge, with the 10-year yield hitting its highest level since 2007 despite softer-than-expected inflation. While the latest data has reduced expectations of an October Fed rate hike, investors remain wary that persistent inflation and higher oil prices could keep rates elevated for longer. The dollar is benefiting from that caution, climbing to a three-month high, while the prospect of a December rate increase keeps pressure on bond markets.”
