Global bond sell-off intensifies as UK 30-year yields top 6%

Key facts

• UK 30-year bond yields surpassed 6% on Thursday, a level not seen since 1998.
• Fears of persistent inflation, high US deficits, and restricted oil supplies are driving the global bond sell-off.
• US 10-year Treasury yields hit their highest level since 2002 on Wednesday.
• European stock markets and the London stock market experienced significant declines.
• Investors are concerned that central banks may need to raise rates further to combat inflation.
• The US dollar climbed to a three-month high amid investor caution.

Global bond markets experienced a significant sell-off on Thursday, with UK long-term borrowing costs reaching a 28-year high as investors grappled with fears of unsustainable US deficits and persistent inflation.

The yield on Britain's 30-year bonds hit 6% for the first time since 1998 amid a morning of hectic trading. Yields on five- and 10-year UK bonds also rose, increasing the government's borrowing costs ahead of the budget.

The turmoil was exacerbated by concerns that the Middle East conflict could continue to restrict oil supplies, potentially leading to renewed inflation. This has spooked investors who believe central banks may be forced to raise interest rates further to prevent price increases from becoming embedded.

Stock markets also suffered, with the London market down 1.7% in early trading, while German and French bourses fell by 1.1%. On Wednesday, US 10-year Treasury yields reached their highest level since 2002, and Japan's 10-year yield rose towards a recent 30-year high.

Despite recent US inflation data coming in lower than expected, traders remain anxious about the Federal Reserve's stance. They fear the Fed will continue to raise rates due to the economy's strength and the potential for wage growth to fuel inflation.

Mohit Kumar, an economist at Jefferies, highlighted growing concerns over the amount of debt being issued to fund government deficits, in addition to inflation worries. He noted a "buyers' strike" as investors await stability, with hedge funds lacking the risk appetite for current market conditions.

Axel Rudolph, chief technical analyst at IG, commented that while expectations for an October Fed rate hike have diminished, persistent inflation and higher oil prices could keep rates elevated for longer. This caution has benefited the dollar, pushing it to a three-month high, while the prospect of a December rate increase continues to pressure bond markets.