UK 30-year bond yield hits 6% amid global market turmoil
Global bond markets have experienced a sharp sell-off, with UK long-term borrowing costs reaching a 28-year high as fears about the US deficit and persistent inflation concerns spook investors. The yield on Britain's 30-year bonds hit 6% for the first time since 1998, a development that adds pressure on Chancellor John Healey ahead of the upcoming budget. Investors believe central banks will be forced to maintain or raise interest rates to prevent inflation from becoming embedded, particularly given persistent oil prices and Middle East supply restrictions.
The turmoil extended beyond bonds to equity markets, with the FTSE 100 falling 1.7% in its worst day since May, whilst major European indices also declined sharply. US government borrowing costs reached 24-year highs, with 10-year Treasury yields hitting 5.34% and 30-year yields exceeding 5.67%. Economists and analysts pointed to mounting concerns over government debt levels and a "buyers' strike" amongst investors unwilling to purchase bonds until market stability returns, though yields retreated somewhat by late afternoon as the initial panic eased.
- UK 30-year bond yield hits 28-year high at 6% amid inflation and deficit concerns
- FTSE 100 falls 1.7%, European markets decline sharply
- Investors fear prolonged high interest rates despite calmer recent inflation data
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Bond yields measure the interest rate that governments pay when they borrow money. The higher a yield, the more expensive it becomes for a government to borrow. They tend to rise when investors worry about a country's finances or expect inflation to remain at high levels.
Currently, investors worldwide are concerned about two main issues: high levels of government debt in major economies, particularly the US, and the risk that inflation may remain elevated for longer than expected. This makes investors reluctant to lend to governments unless offered higher returns, which drives up bond yields. Central banks have been raising interest rates to combat inflation, which reinforces investor concern about the economic outlook.
Higher bond yields affect the UK particularly because the government must pay more to borrow, putting pressure on public finances and the budget. When government borrowing becomes more expensive, it typically makes mortgages and business loans pricier across the broader economy. The concerns driving up bond yields, such as worries about government debt and inflation, also make investors more cautious about riskier investments like stocks.
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Originally published by The Guardian as “Global bond sell-off intensifies, as UK long-term borrowing costs pass 6%”.