British bonds sold off sharply on Tuesday in a turbulent third day of trading, a move that ricocheted through global markets and sent U.S. and European government debt down sharply.
The benchmark 10-year gilt rose 0.26 percentage points to 4.5% on Tuesday, a new 14-year high, after Bank of England chief economist Huw Pill said that the easing of fiscal policy announced last week “would require a significant monetary response”. .”
Britain’s pound and public debt have sold off sharply since Britain’s Chancellor of the Exchequer, Kwasi Kwarteng, announced £45 billion in unfunded tax cuts on Friday. The pound hit a historic low against the dollar on Monday and gilts on all maturities sold off.
The scale of the UK sell-off also intensified the tremors in global markets, which have already been rocked by concerns over rising global interest rates. The U.S. S&P 500 shed gains of up to 1.7% on Tuesday and was down 0.5% at lunchtime. The fall left the benchmark US equity barometer at its lowest level on an intraday basis since November 2020.
European stocks closed at their lows for the day as bonds began to sell. The regional Stoxx Europe 600 index ended the day down 0.1%.
The biggest moves on Tuesday were in long-term debt, with the yield on 30-year gilts rising 0.51 percentage points to 5.04%, its highest level since 2002.
The rise in long-term bonds suggests that investors “are now concerned that the BoE is not moving quickly enough to control inflation,” said Deutsche Bank strategist Jim Reid. He added that investors were also concerned about rising debt in the market, with a 30-year deal due later this week.
The moves in the UK spilled over into global markets, with German and Italian bonds falling sharply, as well as a significant, if more muted, move in the US.
The global reaction is partly due to fears of heightened economic uncertainty due to the UK’s new fiscal plan, some analysts said. The fiscal package and the resulting market reaction have raised the odds of a global recession, Atlanta Federal Reserve Chairman Raphael Bostic said Monday.
The yield on the 10-year German Bund, which is the benchmark for borrowing costs in the EU, rose 0.15 percentage point to 2.25%, its highest level since 2011. Italian bond yields rose for the second consecutive day after a coalition of far-right politicians won elections in Italy. The yield on Rome’s 10-year bond hit 4.7%, its highest level since 2013.
The difference between Italian and German 10-year yields, a measure of financial risk in the region, hit 2.54 percentage points, the highest level since 2020. The growing difference underscores investors’ nervousness about the parties’ success far-right in the Italian elections and their willingness to stick to EU rules.
In the US, longer-dated Treasuries fell, with the 10-year yield, the benchmark for global borrowing costs, hitting 3.97%, close to breaking the key 4% level.
British bonds sold off sharply on Tuesday in a turbulent third day of trading, a move that ricocheted through global markets and sent U.S. and European government debt down sharply.
The benchmark 10-year gilt rose 0.26 percentage points to 4.5% on Tuesday, a new 14-year high, after Bank of England chief economist Huw Pill said that the easing of fiscal policy announced last week “would require a significant monetary response”. .”
Britain’s pound and public debt have sold off sharply since Britain’s Chancellor of the Exchequer, Kwasi Kwarteng, announced £45 billion in unfunded tax cuts on Friday. The pound hit a historic low against the dollar on Monday and gilts on all maturities sold off.
The scale of the UK sell-off also intensified the tremors in global markets, which have already been rocked by concerns over rising global interest rates. The U.S. S&P 500 shed gains of up to 1.7% on Tuesday and was down 0.5% at lunchtime. The fall left the benchmark US equity barometer at its lowest level on an intraday basis since November 2020.
European stocks closed at their lows for the day as bonds began to sell. The regional Stoxx Europe 600 index ended the day down 0.1%.
The biggest moves on Tuesday were in long-term debt, with the yield on 30-year gilts rising 0.51 percentage points to 5.04%, its highest level since 2002.
The rise in long-term bonds suggests that investors “are now concerned that the BoE is not moving quickly enough to control inflation,” said Deutsche Bank strategist Jim Reid. He added that investors were also concerned about rising debt in the market, with a 30-year deal due later this week.
The moves in the UK spilled over into global markets, with German and Italian bonds falling sharply, as well as a significant, if more muted, move in the US.
The global reaction is partly due to fears of heightened economic uncertainty due to the UK’s new fiscal plan, some analysts said. The fiscal package and the resulting market reaction have raised the odds of a global recession, Atlanta Federal Reserve Chairman Raphael Bostic said Monday.
The yield on the 10-year German Bund, which is the benchmark for borrowing costs in the EU, rose 0.15 percentage point to 2.25%, its highest level since 2011. Italian bond yields rose for the second consecutive day after a coalition of far-right politicians won elections in Italy. The yield on Rome’s 10-year bond hit 4.7%, its highest level since 2013.
The difference between Italian and German 10-year yields, a measure of financial risk in the region, hit 2.54 percentage points, the highest level since 2020. The growing difference underscores investors’ nervousness about the parties’ success far-right in the Italian elections and their willingness to stick to EU rules.
In the US, longer-dated Treasuries fell, with the 10-year yield, the benchmark for global borrowing costs, hitting 3.97%, close to breaking the key 4% level.