Gilt yields soar to near 30-year high

(Sharecast News) - UK government borrowing costs soared on Thursday, after 30-year gilt yields hit their highest level since the late 1990s. Thirty-year bond yields rose as much as 6.029%, the highest since January 1998, while benchmark 10-year gilt yields were up 8 basis points at 5.510%, the highest since July 2007. That in turn weighed heavily on equities, and by 1145 BST, the FTSE 100 had tumbled 1% to 10,478.31. European stocks were also weaker.

The sell-off in the bond market, which is being replicated worldwide, is being driven by fears of high inflation, as the increasingly prolonged conflict in the Middle East restricts supplies and pushes up energy prices. Brent crude was trading 2% stronger at $100.05 a barrel while West Texas Intermediate put on 1% at $91.70.

US bond prices also weakened, despite data on Wednesday showing inflation had not risen as much as feared. However, traders remained concerned the Federal Reserve will regardless continue to boost interest rates, and 10-year bond yields rose to more than 5.33%, the highest since 2002.

Neil Wilson, investor strategist at Saxo UK, said there was "carnage" in the bond market. He continued: "This could be a significant moment, as the pressure build-up in the bond market is finally hitting equities."

Russ Mould, investment director at AJ Bell, said: "Andy Burnham and chancellor John Healey already have enough on their plate without a rapid increase in government borrowing costs since they took office. Gilt yields moving at such a pace presents a major challenge for their spending and borrowing plans."

Kathleen Brooks, research director at XTB, said: "Stocks are sinking and global bond yields are rising, in an ominous start to the quarter for financial markets."

Healey is due to publish his first Budget on 28 October, and is under pressure to cut government debt, rein in spending and bolster sluggish economic growth amid a backdrop of higher inflation and mounting cost of living pressures.

Bond prices and yields are inversely related, meaning that when prices fall yields rise.