UK 30-year borrowing costs hit 6%, highest since 1998, as government bond sell-off intensifies – business live | Business

UK 30-year bond yield hits 6%, highest since 1998

Another bout of turmoil in the bond markets is driving up government borrowing costs across the world, and the UK is in the firing line.

Bond prices are falling, which pushes up the yield – or rate of return – on the debt.

And just a moment ago, the yield on Britain’s 30-year gilts hit 6% for the first time since 1998.

The yield on shorter-dated UK bonds are also rising, which will drive up London’s borrowing costs and add to the pressure on chancellor John Healey ahead of the budget later this month.

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.

But instead, traders remain anxious that the US Federal Reserve will continue to raise interest rates to fight inflation.

Axel Rudolph, chief technical analyst at investing and trading platform IG, explains:

“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.

Key events

US job cuts fall

Over in the US, company layoffs have slowed – suggesting America’s labor market is holding up well.

US-based employers announced 43,281 job cuts in September, an 18% drop compared with the 52,881 announced in August, and the lowest total for any September since 2022.

Andy Challenger, workplace expert and chief revenue officer for Challenger, Gray & Christmas, explains:

Companies are in a wait-and-see period right now. Employers are facing high energy costs, an uncertain war in Iran, a rate hike that could make hiring more expensive, plus the liklihood of surging healthcare costs.

We’ve seen layoff activity subside over this year, and September continues to illustrate this point.

US ‘tells France and Germany to release diesel stocks or face export ban’

Bloomberg are reporting that Chinese fuel exporters have “canceled some oil-product cargoes slated for export in October”, which sounds less serious than the full suspension of exports flagged in the previous post.

But either way, it highlights the risks of shortages of petroleum products, which is likely to fuel inflation.

And the situation could get worse for Europe! There are reports that the Trump administration has told Germany and France to draw down emergency diesel inventories to help to ease global fuel prices or face a potential US diesel export ban.

Oil prices rise 2% as ‘China suspends fuel exports’

The oil price is rising this morning, following reports that China has suspended oil products exports.

According to Reuters, Chinese refiners have suspended exports of oil products to regions beyond Hong Kong and Macau until further notice.

This could lead to fresh stress in global fuel markets, where diesel prices have already been hitting record highs in some countries (including the UK).

Brent crude is now up 2.7% today, at $100.66 a barrel.

Nearly every company included in the FTSE 100 share index has fallen this morning.

Games Workshop, the tabletop gaming company, is leading the sell-off, down almost 5%. Banks and housebuilders are also in the top fallers.

The only risers are engineering group Rolls-Royce (+1.2%), safety equiment maker Halma (+0.5%) and Polar Capital Technology Trust (+0.2%)

Euro hits 17-month low

The dollar is strengthening amid the turmoil in markets today.

The dollar index, which tracks the greenback against a basket of currencies, has gained 0.36% this morning.

This rally has driven the euro down to a 17-month low, falling below the $1.13 mark for the first time since May 2025.

UK factories report growing inflation pressures as growth slows

Just in: The rate of growth across UK manufacturing slowed last month.

Data provider S&P Global has reported that output growth slowed for a second month in a row at UK factories in September.

And worryingly, factory bosses also reported that input price inflation – which measures the cost of their raw materials – accelerated for the first time in four months. That prompted them to raise their own prices.

This suggests no respite to the inflationary pressures which are rocking the bond market today.

Rob Dobson, director at S&P Global Market Intelligence, says:

“A disappointing September PMI saw the rate of increase in UK manufacturing production slow further.

Output growth was its weakest seen over the past six months, with orders and exports growing only modestly. Slower demand growth was to be expected given the higher energy prices seen during the month.”

XTB: The drivers of the global bond sell-off

Kathleen Brooks, research director at XTB, has warned that the bond market sell off is gathering pace today.

She cites several factors, including concerns over US government spending and the rising oil price:

Global bonds sold off more than 2% in September, the most since 2024, after Donald Trump was elected for a second term. Back then, bonds sold off due to Trump’s expected expansionary fiscal policy. Today, bonds are selling off on the back of his foreign policy, as well as his fiscal largess.

While bond markets are pricing in stronger growth across the developed world, there is also the realization that there is now a structural premium attached to the oil price and to refined products. This will keep prices elevated for the long term, as it does not appear that a neat diplomatic solution to the war in the Middle East will be reached any time soon.

This is playing out in the sovereign bond market, and the sell off in bonds is happening at the same time as the oil price is rising. Brent crude is back above $100 per barrel today, which is a significant psychological level, in the same way, a 6% yield on a 30-year Gilt is also significant.

Italy’s 10-year government bond yields has just touched its highest level since November 2023 at 4.7232%. That’s a rise of 10 bps (or 0.1 of a percentage point) today.

Stock markets hit by ‘carnage in the bond markets’

European stock markets are sliding sharply, as the sell-off in the bond market hit equities.

The pan-European Stoxx 600 index has slumped by 1.2% this morning, with losses of at least 1% in Germany, Paris, Madrid and Milan, as well as London.

Britain’s FTSE 100 index is leading the rout, indeed – the blue-chip index is now down 1.9% or 201 points. That would be its biggest one-day fall since March.

Investors are clearly concerned by the tumble in bond prices today.

Neil Wilson, Saxo UK investor strategist, says:

This could be a significant moment for the market as the pressure build-up in the bond market is finally hitting equities.

Selling in bonds is heavy across the board and the US 10yr has just taken out its highest since 2002 above 5.33% and the UK 30yr gilt has just broken 6%, its highest since 1998….there is carnage in the bond market which is hitting stocks hard.

Alarming widening in French-German bond spread

Worryingly for Paris, the difference between French and German borrowing costs has widened to a 14-year high this morning.

The gap between French and German government bond yields – a market gauge of the risk premium investors demand to hold French debt – was at 127.51 bps, after reaching 128.80 bps, its highest level since June 2012, Reuters reports.

What is driving the global bond market sell-off?

Mohit Kumar, economist at Jefferies, cites worries about the amount of debt being issued to fund government deficits, as well as inflation concerns, telling clients:

Inflation, deficit and issuance concerns continue to weigh on the bond market.

There is also a buyers strike on the street as investors do not want to step in till we get some form of stability. Hedge Funds have suffered in the latest round of sell-off and do not have the risk appetite to fade the move. Real money, potentially has the risk appetite, but won’t step in till we get some stability.

France’s 10-year bond yield has hit its highest level since July 2002, Reuters reports, having risen to 4.96% this morning.

Wealth Club: the bond market is flashing warning lights

The bond market is “flashing warning lights”, says Susannah Streeter, chief investment strategist at Wealth Club:

“The bond market is adding to the pressure cooker ahead of the UK Budget, with the 10-year gilt yield climbing to around 5.49%, the highest level since July 2007.

The warning lights are flashing in a week when the government paid the highest yield on a 10-year gilt auction since 1999, underlining how much more expensive it is becoming to borrow. With debt already high and interest payments eating up a hefty chunk of public finances, sustained yields at these levels could further squeeze the Chancellor’s wiggle room when he sets out his spending plans.