Global financial markets fell sharply as bond market turmoil, sparked by inflation worries, government spending concerns and heavy borrowing by AI companies, spread from Tuesday's session into Asian and Wall Street trading. The sell-off matters because rising government borrowing costs threaten to squeeze fiscal headroom for governments, including the UK's, complicating spending plans ahead of the upcoming budget, while also risking higher mortgage rates for households.

Asian shares tumbled on 2 September, with Tokyo's Nikkei 225 down 2.7%, South Korea's KOSPI down 3.3% and China's CSI 300 losing 1.4%, as renewed US-Iran tensions pushed oil prices higher. Wall Street also closed lower overnight, with the Russell 2000 falling 1.2%. This followed a bond rout on Tuesday in which UK long-term borrowing costs hit their highest level since early 1998 and Japan's 10-year yield reached its highest since 1996; economist Lord Jim O'Neill warned UK mortgage rates would rise unless bond markets calm, noting gilt yields had jumped a quarter of a percentage point in a single day, the sharpest move since the Liz Truss era.