Global bond markets saw intensified turmoil on Thursday, pushing UK long-term borrowing costs to a 28-year high. This comes amid concerns that the US deficit is reaching unsustainable levels.
In morning trading, the yield on Britain's 30-year bonds, which acts as a proxy for the interest rate, reached 6% for the first time since 1998. Yields on five- and 10-year UK bonds also increased, raising government borrowing costs.
The sell-off in bond markets globally is attributed to fears of high inflation, partly due to ongoing restrictions on oil supplies from the Middle East conflict. Investors believe central banks may need to raise rates in the coming months to prevent price increases from becoming embedded.
Stock market investors also sold heavily, leading to a 1.7% drop in the London stock market during early trading. Bourses in Europe were also affected, with Germany's Dax and France's CAC 40 falling by 1.1%.
Mohit Kumar, an economist at Jefferies, noted growing concern regarding the amount of debt issued to fund government deficits, alongside inflation concerns. Axel Rudolph, chief technical analyst at IG, stated that while recent data reduced expectations of an October Fed rate hike, investors remain cautious that persistent inflation and higher oil prices could keep rates elevated for longer.