LONDON
The yield on Britain's 30-year gilts climbed to 6 percent on Thursday, the first time since 1998, as a broad-based bond selloff gripped global markets. The move signaled intensified investor anxiety over U.S. fiscal deterioration and persistent inflation expectations.
The spike in long-dated yields reflects a critical shift in how the market is pricing duration risk. Mohit Kumar, an economist at Jefferies, identified the core drivers: "Inflation, deficit and issuance concerns continue to weigh on the bond market." The volume of debt required to finance government deficits, combined with sticky price pressures and elevated oil costs, has created a buyers' strike. Kumar noted that hedge funds, nursing losses, lack risk appetite, while institutional investors are withholding capital pending market stabilization.
UK five- and 10-year gilt yields also rose sharply during Thursday's session, directly compressing gilt spreads and raising the government's borrowing costs ahead of Chancellor John Healey's budget announcement later this month.
The selloff extended globally. U.S. 10-year Treasury yields reached their highest level since 2002, while Japan's 10-year yield pressed toward the 30-year high set last month. The move persisted despite U.S. inflation data on Wednesday coming in below forecast—traditionally a bond-supportive signal that failed to arrest the decline.
Neil Wilson, an investor strategist at Saxo UK, described the market action plainly: "Carnage in the bond market is hitting stocks hard. The relentless rout in the bond market is sending investors running for cover."
Equity markets absorbed heavy losses in sympathy with fixed income. London's FTSE 100 dropped 1.7 percent in early trading. Germany's Dax and France's CAC 40 each fell 1.1 percent.
By midday in the UK, the initial selling pressure eased. The 30-year gilt yield retreated below 6 percent, and equity indices recovered from their morning lows, though the reprieve appeared fragile.
Axel Rudolph, chief technical analyst at IG, cautioned that while recent economic data had reduced expectations for an October Fed rate hike, the inflation and oil price backdrop poses ongoing upside risk to rates. "Persistent inflation and higher oil prices could keep rates elevated for longer," Rudolph said.
