Today · Echonomia Post
From 4h ago Long-term UK borrowing costs at 28-year high Longer-dated gilt yields have also surged, which means higher borrowing costs for Andy Burnham ’s government. The yield, or interest rate, on the 30-year gilt jumped 9 basis points to 5.88%, the highest since March 1998. This comes as oil prices keep climbing, with Brent crude rising 1.7% to $92.1 a barrel.
US West Texas Intermediate is 1.9% higher at $87.35 a barrel. Thomas Pugh , chief economist at the audit, tax and consulting firm RSM UK, said: double quotation mark Gilt yields are up and it’s tempting to blame this on UK-specific factors. But government bond yields are surging across the world, especially in America.
That doesn’t mean the UK is off the hook. We still have to pay a higher interest rate than similar countries, suggesting investors see us as a riskier place for their cash. That reflects a combination of political risk, low growth and sticky inflation.
The energy shock and the threat of rising inflation are important factors. Inflation expectations matter because inflation erodes the purchasing power of a bond’s fixed payments. When investors believe inflation could remain elevated, they demand a higher yield as compensation.
But there is much more to it than that, especially for longer-dated bonds. Governments are still spending as if interest rates were near zero and their economies were in crisis. The budget deficit in the UK is likely to be close to 4% of GDP this year and close to 6% in the US.
At the same time, this borrowing is becoming increasingly hard to finance. The UK will spend about 3.7% of national income just to pay the interest on its debt. In other words, we are borrowing more to help cover our interest bill increasing the risk of public debt rising further and prompting global investors to demand a higher risk premium.
There is also something of a credibility issue, he said. double quotation mark Inflation has been above target in the UK and US for much of the past five years, raising questions about whether it will return sustainably to 2%. Meanwhile, various governments have not followed through on promises to bring deficits down. Lenders therefore have to factor the prospect of higher inflation and greater bond issuance into the price they are willing to pay.
The elephant in the room is the rise of economic populism. There is a logic to populism, whether it comes from the right or the left. Both versions tend to favour expansionary fiscal policy – tax cuts, higher spending or both – tolerate higher inflation and resist efforts by central banks to restore price stability.
If such policies continue for long enough without a course correction, the risks of financial and currency instability increase. Global investors understand where such policies can lead. Alongside the huge supply of government bonds, the private sector is also starting to borrow more.
AI firms are expected to borrow about $500bn this year to build data centres – for comparison, the UK government will borrow about $160bn. That is increasing competition for capital and pushing yields higher. None of these factors look temporary, and so bond yields are rising to compensate.
Key events 30m ago Wheat prices hit 3 1/2 year high on Russia's Black Sea attacks 2h ago Mining and manufacturers drag FTSE 100 lower 2h ago UK bond market rout deepens 2h ago Eurozone factory activity growth highest in over four years 3h ago European stock markets fall sharply 3h ago UK manufacturing PMI slips to five-month low but hiring picks up 4h ago Long-term UK borrowing costs at 28-year high 5h ago UK 10-year gilt yield jumps to highest since June 2008 5h ago Brent crude rises above $91 a barrel; just 5 ships transit strait of Hormuz 5h ago Shein shares tumble after Hong Kong stock market debut 5h ago Introduction: Bond sell-off intensifies around the world as oil prices rise above $91 a barrel, stoking inflation fears Wheat prices hit 3 1/2 year high on Russia's Black Sea attacks Wheat prices have surged to a three-and-a-half year high, after reports that Moscow rejected a moratorium on attacks in the Black Sea, and struck Ukrainian ports overnight. Earlier, prices retreated after Turkey issued a statement saying that it is in contact with Russia and Ukraine about grain shipping through the Black Sea. Soybean and corn prices also climbed, to the highest levels in three years for soybeans, and a two-and-a-half year peak for corn.
The most-traded wheat contract on the Chicago Board of Trade climbed to a peak of $7.92-1/4 a bushel, the highest since 15 February, 2023, and later traded about 1% higher. Corn rose to $5.38-1/2 a bushel and is now flat, while soybeans increased nearly 1% to $13.00-1/4 a bushel. Russia attacked Ukraine’s port infrastructure and a border crossing with Romania in the southern Black Sea region of Odessa overnight, according to Ukrainian officials.
Here’s our full story on the sell-off in government bonds around the world. The UK government’s long-term borrowing costs jumped to their highest level since early 1998 on Tuesday as a global bond sell-off gathered pace, writes our economics editor Heather Stewart . The yield – in effect the interest rate – on 30-year UK government bonds, known as gilts, hit 5.89% as traders fretted about a fresh increase in oil prices driving up inflation.
Ten-year gilt yields were at nearly 5.25%, the highest level since the global financial crisis of 2008. Higher yields progressively increase the cost of financing the government’s debt, and if sustained these would pass through to the Office for Budget Responsibility’s forecasts for the chancellor, John Healey , when he delivers his 28 October budget. The moves underline the tricky global backdrop facing Andy Burnham’s government as he returns to Westminster promising to help consumers with the cost of living.
The bond sell-off was driven by international factors. Japanese 10-year yields hit their highest level since the 1990s amid expectations that the Bank of Japan will have to raise interest rates to control inflation. Investors also appeared to be responding partly to higher oil prices, which were up 1.7% at $92 after a fresh exchange of fire in the Iran conflict over the weekend.
Higher energy costs drive up inflation, potentially forcing central banks to respond. Finance ministers and central bankers from the G20 major economies are meeting in North Carolina to discuss the state of the global economy. The US Treasury secretary Scott Bessent, who chaired the G20 meeting of his peers, hinted afterwards that Japanese policymakers could be about to raise interest rates.
“I have information that the market doesn’t have, and it’s my belief that the Japanese government and the Bank of Japan will do the things that will lead to a stronger yen,” he said. In August the US and Japan took the rare step of intervening jointly in global foreign exchange markets in an attempt to prop up the yen, but the Japanese currency subsequently resumed its slide. The London stock market is also reeling from the departure of two more companies.
Bodycote and Gamma Communications are the latest names to be taken private. UK industrials group Bodycote said it had agreed a £1.8bn takeover from US private equity group Veritas . Gamma agreed to a takeover by London-based private equity firm Epiris , valuing the British telecom firm at £1.08bn.
Mould said: double quotation mark Bodycote, which successfully rebuffed interest from Apollo earlier this year, has finally conceded defeat as this initial takeover saga flushed out subsequent interest from two other private equity groups in CVC and Veritas. The story may not quite be over as CVC has said it might come back with its own improved offer but even based on the terms from Veritas the premium is a bit above the 37% average for UK takeovers so far in 2026. After a lengthy pursuit, another private equity buyer in Epiris secured the backing of the board at Gamma for a takeover at a 53% premium to the undisturbed share price.
While some investors may be toasting the payoff they receive from the wave of M&A, the longer-term implications are potentially bleak. These deals mean a further dilution of the breadth and quality of a UK market which is struggling to attract new companies to replace the ones which are being acquired. Mining and manufacturers drag FTSE 100 lower The FTSE 100 index is down just over 1%, driven by sharp falls in mining and manufacturing shares.
Endeavour Mining is leading the index lower, down 8%, while fellow miners Fresnillo and Antofagasta have also fallen sharply. Major manufacturers including aircraft engine maker Rolls-Royce and the aeorospace company Melrose Industries are down more than 4%. AJ Bell investment director Russ Mould said: double quotation mark A post-UK Bank Holiday hangover looked inevitable for the FTSE 100 given the losses chalked up across Europe, Asia and the US since the end of last week,” says Government bond yields have renewed their surge as oil prices move back above $90 per barrel, bringing concerns about inflationary pressures back to the fore.
In a familiar pattern, the hints at diplomatic progress in the Middle East last week have amounted to little as hostilities between the US and Iran instead ramp up once more. UK bond market rout deepens The sell-off in UK government bond markets has deepened further, sending yields soaring – and putting pressure on Andy Burnham ’s government. The yield on the 30-year gilt has climbed further, and is now up 10 basis points at 5.89%, the highest since February 1998.
The 10-year yield, or interest rate, has also jumped 10bps, to 5.246%, the highest since June 2008 when it was 5.25%. Eurozone factory activity growth highest in over four years Growth at factories in the eurozone has hit its fastest pace in more than four years, in contrast to the slowdown in UK manufacturing in August. S&P Global’s eurozone purchasing managers’ index climbed to 52.7 last month from 51.9 in July, its highest reading since May 2022, but just below a preliminary reading of 52.8.
Any reading above 50 points to expansion. New orders grew at their fastest rate since early 2022, as export orders were up only the second time in four-and-a-half years. Overseas sales were particularly strong in Austria, Germany and the Netherlands.
Germany, the bloc’s biggest economy, enjoyed its strongest factory growth in over four years while France was also strong. But Italy fell into contraction for the first time since January and Spain’s manufacturing sector also shrank. Joe Hayes , senior principal economist at S&P Global Market Intelligence, said double quotation mark The August PMI report provided the clearest signs yet that the eurozone’s industrial economy has so far shaken off both the oil price shock and supply-related disruptions caused by the Middle East war.
Stronger order book growth, in part owing to a recovery in export demand, should give this expansion legs. Breaking the PMI data down by the three main industrial groupings revealed the intermediate goods sub-sector as the main contributor of manufacturing growth. This includes critical industries such as chemicals and metals, as well as electrical equipment and electronic components, suggesting the euro area can also be a beneficiary from the tech supercycle, even if it’s arriving late to the party.
“A further softening of producer price increases, even in the midst of sustained oil market volatility, helps to alleviate broader inflation worries. That said, the pace of disinflation is starting to level off and the PMI’s price metrics remain well above their pre-war levels, which may just embolden a cautious stance by eurozone monetary policymakers. European stock markets fall sharply European stock markets are a sea of red, a gloomy start to September.
As traders return from the UK Bank Holiday, the FTSE 100 index in London has fallen 1.1%. The UK’s benchmark stock index is down 123 points at 10,701, with government bonds selling off as part of a global rout. Other major European markets are also down sharply, as traders worried about the resumption of military action between the US and Iran.
Germany’s Dax fell 1.1%, France’s slipped 0.4%, and Italy’s FTSE MiB and Spain’s Ibex are down more than 1%. UK manufacturing PMI slips to five-month low but hiring picks up Adding to pressure on the UK’s new prime minister, activity growth in the manufacturing sector has slowed to the weakest since March, according to a closely-watched monthly survey. In better news, hiring at factories picked up to the fastest pace in more than two years last month.
The headline purchasing managers’ index (PMI) from S&P Global for British manufacturing slipped to 51.7 in August from 51.9 in July, indicating slower activity growth. Any reading above 50 signals expansion. Output growth slowed to the weakest since April, the survey showed.
At the same time, employment grew at the fastest rate in two years as new orders improved and companies were keen to reduce backlogs of work. Optimism about the year ahead hit a six-month high amid lower trade tensions. The Nissan Car Plant factory at Washington near Sunderland, UK.
Photograph: AP S (uk)/Alamy Manufacturers raised prices at the slowest rate since March, as cost inflation slowed to the lowest pace since February, although trade tariffs, geopolitical conflict and shipping disruption continued to push up prices. The survey was conducted between 12 and 25 August. Rob Dobson , director at S&P Global Market Intelligence, said: double quotation mark The rate of expansion in the UK manufacturing sector cooled in August, with output and new order growth losing traction.
There are still signs for continued optimism, however, as manufacturers reported a positive outlook for the year ahead. Business confidence rose to a six-month high and job creation was the strongest for two years. This suggests that the slowdown was mainly driven by a reduced focus on maintaining precautionary stocks as economic uncertainty eases, especially as domestic and overseas clients continue to show a willingness to spend albeit with a relatively high degree of caution.
Although cost and supply chain pressures remain potentially damaging, there was better news on these fronts too. Volatility in energy markets, supply constraints, geopolitical strife and transportation disruptions are all keeping cost rises at elevated levels, but August at least saw purchase price inflation descend from recent peaks to a six-month low. Supply chain delays were the least marked for six months too, which should provide additional respite to cost pressures barring any further major disruptions.
Long-term UK borrowing costs at 28-year high Longer-dated gilt yields have also surged, which means higher borrowing costs for Andy Burnham ’s government. The yield, or interest rate, on the 30-year gilt jumped 9 basis points to 5.88%, the highest since March 1998. This comes as oil prices keep climbing, with Brent crude rising 1.7% to $92.1 a barrel.
US West Texas Intermediate is 1.9% higher at $87.35 a barrel. Thomas Pugh , chief economist at the audit, tax and consulting firm RSM UK, said: double quotation mark Gilt yields are up and it’s tempting to blame this on UK-specific factors. But government bond yields are surging across the world, especially in America.
That doesn’t mean the UK is off the hook. We still have to pay a higher interest rate than similar countries, suggesting investors see us as a riskier place for their cash. That reflects a combination of political risk, low growth and sticky inflation.
The energy shock and the threat of rising inflation are important factors. Inflation expectations matter because inflation erodes the purchasing power of a bond’s fixed payments. When investors believe inflation could remain elevated, they demand a higher yield as compensation.
But there is much more to it than that, especially for longer-dated bonds. Governments are still spending as if interest rates were near zero and their economies were in crisis. The budget deficit in the UK is likely to be close to 4% of GDP this year and close to 6% in the US.
At the same time, this borrowing is becoming increasingly hard to finance. The UK will spend about 3.7% of national income just to pay the interest on its debt. In other words, we are borrowing more to help cover our interest bill increasing the risk of public debt rising further and prompting global investors to demand a higher risk premium.
There is also something of a credibility issue, he said. double quotation mark Inflation has been above target in the UK and US for much of the past five years, raising questions about whether it will return sustainably to 2%. Meanwhile, various governments have not followed through on promises to bring deficits down. Lenders therefore have to factor the prospect of higher inflation and greater bond issuance into the price they are willing to pay.
The elephant in the room is the rise of economic populism. There is a logic to populism, whether it comes from the right or the left. Both versions tend to favour expansionary fiscal policy – tax cuts, higher spending or both – tolerate higher inflation and resist efforts by central banks to restore price stability.
If such policies continue for long enough without a course correction, the risks of financial and currency instability increase. Global investors understand where such policies can lead. Alongside the huge supply of government bonds, the private sector is also starting to borrow more.
AI firms are expected to borrow about $500bn this year to build data centres – for comparison, the UK government will borrow about $160bn. That is increasing competition for capital and pushing yields higher. None of these factors look temporary, and so bond yields are rising to compensate.
UK 10-year gilt yield jumps to highest since June 2008 UK government borrowing costs have risen to the highest since 2008, as higher oil prices stoke inflation fears. Brent crude, the global oil benchmark, is now up 1.3% at $91.69 a barrel. The yield on the 10-year gilt has jumped 7 basis points to 5.223%, the highest since June 2008.
It’s a global bond sell-off –– pushing yields higher around the world (prices move in opposite direction to yields). The equivalent Japanese government bond yield hit 3% for the first time since September 1996. Germany’s 10-year yield, the benchmark for the eurozone, rose 2 basis points to 3.34%, a fresh 15-year high.
Inflation in Germany, the eurozone’s biggest economy, picked up in August to 2.9% from 2.8% in July, driven by energy inflation of 10.5%, according to preliminary data on Monday. But the increase was smaller than expected and core inflation, stripping out energy and food costs, held at 2.4%. The bond market is also under pressure a surge in issuance, as big technology companies raise money to fund the AI boom, competing with government bonds.
Brent crude rises above $91 a barrel; just 5 ships transit strait of Hormuz Oil prices are heading higher after the latest escalation in the Middle East, with Brent crude now up 0.8% at $91.23 a barrel. On Monday, five commodity vessels transited the strait of Hormuz, similar to recent days but below the 10-day average of 14, according to shipping data from KPler, but none of them were liquid tankers. The waterway has been effectively closed by Iran since the US and Israel started attacking on Tehran on 28 February, and despite efforts by mediators including Qatar and Oman there is still no deal to reopen the strait.
The United Kingdom Maritime Trade Operations agency said on Tuesday that a tanker reported being struck by three projectiles while sailing out of the strait, without casualties or environmental impact. Analysts at Australia and New Zealand Banking Group said: double quotation mark Despite satellite tracking firms suggesting oil flowing through Hormuz is around 6m barrels a day, that is well below pre-conflict levels. In the meantime, the buffers the global oil market has been relying on are becoming exhausted.
US inventories are nearing minimum levels, while China’s ability to keep imports low will be tested as seasonal demand picks up. Shein shares tumble after Hong Kong stock market debut Mark Sweney More on Shein ’s stock market debut in Hong Kong. “Let global consumers enjoy the sound of fashion,” said Leigh Gui , Shein’s chief financial officer, after a gong was struck to mark the start of trading.
The lacklustre launch as a publicly listed company comes after one of the longest-awaited initial public offerings in recent years, after plans to list in New York were blocked by regulators over forced labour concerns. Shein also considered a £50bn flotation in London , but faced similar questions about its supply chain from campaigners, MPs and investors. Representatives of Shein International Holdings Ltd and Mech-Mind (Xiong'an) Robotics Technology Co Ltd attend the listing ceremony at the Hong Kong Stock Exchange on 1 September.
Photograph: China News Service/Getty Images The plunge in value has been driven by regulatory changes around the world that threaten its business model of shipping goods in small packages out of China to take advantage of tax breaks on low-value imported goods. Shein swung to a loss of $99m in the first three months of this year, compared with a net income of $395m the year before, after the US removed its “de minimis” import duty exemption on small packages, hitting its sales in the country. The EU is also cracking down on the loophole – introducing a €3 (£2.56) duty on small parcels imported from outside the trading bloc in June – and intends to phase it out, while the UK has said it will do the same by October 2028.
Nevertheless, the company has still become one of the world’s biggest listed fashion groups with a valuation around the same as Swedish retailer H&M. Zara owner Inditex has a market capitalisation of around $213bn. Introduction: Bond sell-off intensifies around the world as oil prices rise above $91 a barrel, stoking inflation fears Good morning, and welcome to our rolling coverage of the global economy, the financial markets, the eurozone and business.
Global government bonds are selling off again, pushing yields to new highs, as oil prices have risen above $91 a barrel, stoking inflation fears. Renewed fighting in the Middle East pushed Brent to $91.13 a barrel, up 0.7%, following Monday’s 2.7% drop. US West Texas intermediate, the other oil benchmark, is up 0.77% at $86.42 a barrel, after a 2.8% fall on Monday.
The US and Iran exchanged fire for the first time in a month on Monday , with missiles and drones fired at Iranian rocket launchers on an island in the strait of Hormuz, prompting Iran to target US military bases in Jordan and the United Arab Emirates in response. Donald Trump threatened further action, telling Fox News: “We’re going to hit them hard.” Japan’s 10-year benchmark government bond hit 3% for the first time in a generation, and is now up nearly 5 basis points at 2.99%. The US 10-year Treasury yield rose 2.6bps to 4.78%, the highest since early 2025.
The equivalent UK gilt yield was up slightly at 5.14%. Inflation fears have boosted expectations of interest rate hikes. Markets are pricing in a rate increase in New Zealand on Wednesday, while the European Central Bank is widely expected to raise its key interest rates by 0.25 percentage points at its next meeting on 10 September.
Traders also see a better-than-even chance of rate hikes in the US and Japan this month. The Bank of England is not expected to move until later this year, with markets pricing in a quarter-point rate hike to 4% around November or December. Stock futures are pointing to a lower open when European markets open in about 15 minutes, with Wall Street also expected to fall later after modest declines on Monday.
In Asia, shares were mixed – Japan’s Nikkei was flat while Hong Kong’s Hang Seng lost 0.8% and South Korea’s Kospi eked out a 0.2% gain after earlier losses. Shein shares tumbled 10% after the online fast fashion retailer’s stock market debut in Hong Kong. Its share price later recovered somewhat but still closed 4% below its offer price, at HK$46.62.
The company – once estimated to be worth nearly $100bn (£74bn) – went public with its shares priced at HK$48.56, valuing the business at just over $26bn. The Agenda 9am BST: Eurozone Manufacturing PMI 9.30am BST: Bank of England data on mortgage approvals and consumer credit 9.30am BST: UK Manufacturing PMI 3pm BST: US Manufacturing PMI
Source: The Guardian
