Bond market sell-off cools slightly as oil price falls
Back in the bond markets, the early jump in borrowing costs this morning is slightly calming.
The yield (or rate of return) on UK 10-year bonds is only up 2 basis points (0.02 of a percentage point) at 5.22%, having earlier traded as high as 5.29% (an 18-year high).
30-year bond yields have also calmed – up 2 bps at 5.86%, having traded over 5.91% earlier this morning.
Yields have eased back since Andy Burnham’s first prime minister’s questions today, where he pledged to stick to the UK’s fiscal rules – that might reassure investors that they won’t see a borrowing splurge in the autumn budget.
But it also reflects a wider calming in the bond markets – where the yields on US government debt are slightly lower today.
And that’s being helped by a drop in the oil price – Brent crude is now down 1% today at $93.83 a barrel, having hit $97 this morning.
Key events
Closing post
Time to wrap up
The turmoil in global bond markets appears to have eased slightly, after the oil price dipped back.
UK government borrowing costs hit their highest level since 2008 this morning, but have since eased back a little – 10 and 30-year bond yields are now only slightly higher today.
UK bond yields fell back after the price of a barrel of Brent crude eased back, after hitting its highest level in over a month this morning.
In afternoon trading:
-
The UK’s 10-year bond yield is up 2.5bps (0.025 of a percentage point) at 5.23% (having earlier hit the highest since 2008 at 5.29%).
-
The 30-year bond yield is up 2.3bps at 5.865%, having earlier been as high as 5.91%
Overnight, Australia’s government borrowing costs hit a 15-year high, while the yield on India’s bonds traded over 7% amid global jitters in the bond market.
Lale Akoner, etoro global market strategist, had warned that the sell-off may not be over, saying:
“The global bond selloff could have further to run. High oil and gas prices are keeping inflation worries alive, while governments and technology companies borrow heavily for AI. In our view, bond yields could remain high even if economies slow, because central banks may delay rate cuts and more bonds compete for investors’ money.
“The same energy shock is creating winners and losers in stocks. Higher oil prices should support earnings and cash flow for energy producers and oil-services groups, especially companies that keep spending and debt under control. Airlines, logistics, chemicals and consumer businesses face higher costs, weaker demand and tighter margins, although fuel hedges may offer protection.
“For investors, we prefer shorter-term bonds because they should be steadier, inflation-protected bonds, selected energy stocks and financially strong companies. We would become more positive on longer-term bonds once energy prices stabilise and central banks can begin considering interest-rate cuts again.”
The bond market sell-off overshadowed Westminster too, where Andy Burnham blamed the Conservatives’ legacy for leaving the UK vulnerable to market turmoil:
Canada leaves interest rates on hold after Trump trade war flared up
In Ontario, the Bank of Canada has left interest rates on hold as policymakers weigh up the consequences of the trade war with the US.
The BoC left its overnight rate unchanged at 2.25%, as expected, but also warned that the upside risks to inflation have increased.
Policymakers pointed out that the continuing conflict in the Middle East is keeping energy prices high, and that new US tariffs and Canadian counter-measures could also push up prices, saying:
…with the Middle East conflict still ongoing and little progress reopening the Strait of Hormuz, upside risks to the Bank’s inflation forecast have increased.
The longer that high oil prices and elevated refinery margins persist, the greater the risk of spillover to the prices of other goods and services. New US tariffs and Canadian counter-tariffs will also raise costs for some businesses and could feed into consumer prices over time.
Wall Street opens slightly higher
Stocks have opened slightly higher in New York, as investors watch the jitters in the bond market, and the ongoing Middle East conflict.
The Dow Jones Industrial Average rose by 62.7 points, or 0.12%, at the open to 52,829.58.
The broader S&P 500 index is up just 0.1%.
The rise in government bond yields arguably reflects a market doing its job.
Investors are wary that certain governments aren’t controlling their spending or prioritising deficit reduction (such as the US), and thus demanding a higher rate of return (yield) for holding debts.
Lauren van Biljon, senior portfolio manager at Allspring Global Investments, explains:
The sell-off is being driven by two related concerns. Namely, persistent inflation uncertainty, and a renewed focus on debt sustainability amidst fiscal pressure. Markets are demanding a higher term premium to lend to governments for longer periods, particularly in countries with rising borrowing requirements, driving up yields on longer-dated bonds.
Concurrently, shorter-dated securities are feeling the pressure from the renewed rise in commodity prices, which risks increased persistence in inflationary pressures. Alongside better-than-expected global growth, this could force central banks to be more hawkish than currently expected, and for a longer period.
Van Biljon adds that the UK, Japan, and countries in the EU are all exposed to higher commodity prices, which creates more pressure on their bond yields – and could prompt central banks to raise interest rates.
“We expect additional cautious tightening from the European Central Bank, and a Bank of Japan that continues to tighten but at a disappointing pace. The Bank of England could be forced to follow suit later in the year but will be data-driven (wages/labour markets in particular).”
Over in the US, private employers have posted their slowest pace of job creation since January.
Data provider ADP has reported that US private sector employment rose by just 38,000 in August, which is the slowest pace of job creation since January, adding:
Manufacturing, professional services, and information shed jobs. Education and health care, construction, and leisure and hospitality all showed solid hiring.
That might possibly help to cool the bond markets too – as a weakening US jobs market might deter the US Federal Reserve from raising interest rates soon to fight inflation…
Bond market sell-off cools slightly as oil price falls
Back in the bond markets, the early jump in borrowing costs this morning is slightly calming.
The yield (or rate of return) on UK 10-year bonds is only up 2 basis points (0.02 of a percentage point) at 5.22%, having earlier traded as high as 5.29% (an 18-year high).
30-year bond yields have also calmed – up 2 bps at 5.86%, having traded over 5.91% earlier this morning.
Yields have eased back since Andy Burnham’s first prime minister’s questions today, where he pledged to stick to the UK’s fiscal rules – that might reassure investors that they won’t see a borrowing splurge in the autumn budget.
But it also reflects a wider calming in the bond markets – where the yields on US government debt are slightly lower today.
And that’s being helped by a drop in the oil price – Brent crude is now down 1% today at $93.83 a barrel, having hit $97 this morning.
Uber cutting 3,300 jobs
Newsflash: Ride sharing, food delivery and robotaxi group Uber is cutting 10% of its staff, Bloomberg are reporting.
The cuts will wipe out around 3,300 roles, in a massive restructuring aimed at reducing management layers and reallocating spending.
Bloomberg explain:
Chief executive officer Dara Khosrowshahi announced the changes in an email obtained by Bloomberg News, saying that Uber’s growth in recent years has created “more layers, more coordination, more fragmented ownership, and in some cases structures that made sense when businesses were smaller but no longer serve us well at our current scale.”
Burnham: We’ll stick to the fiscal rules
Over in parliament, prime minister Andy Burnham has pledged to stick the UK’s fiscal rules, as the UK tries to calm the bond markets.
Burnham was asked about about the rise in government borrowing to an 18-year high, and the concerns voiced by Lord O’Neill last night (see opening post).
Burnham replied that he and Jim O’Neill had worked together in Manchester to stimulate its economy.
Reminding MPs about the chaos of Liz Truss’s administration, Burnham suggested that the turbulence on global markets is due to the exposure which the then-governing Conservative party left behind.
He says the Labour government is turning the corner, with the fastest growth in the G7 this year, and cutting the UK deficit faster than any other G7 country.
And the PM pledges:
This will be a government grounded in fiscal responsibity, it will stick to the fiscal rules.
But at the same time we will help reduce cost of living pressures on our constituents.
My colleague Andy Sparrow is live-blogging all the action from PMQs:
O’Neill: bond markets would like to see action on ‘excesses of the triple lock’
Economist Lord Jim O’Neill has hinted that the government could rein in the pension triple lock to placate the bond markets.
Speaking to Times Radio, Lord O’Neill argued the Budget would have to include either spending cuts or “some form of tax increases” in order to restore the Government’s “headroom”.
Lord O’Neill suggested the bond markets would “respond favourably” to a Government that takes “credible action to deal with the excesses of the triple lock or the excesses of welfare spending”.
As we reported last night, the bond market sell-off could wipe out half of chancellor John Healey’s headroom to keep within the UK’s fiscal rules.
The bond market sell-off could prompt the Bank of England (BoE) to reconsider whether to continue with its own sale of UK government debt.
The BoE is due to decide later this month whether to maintain its ‘quantitative tightening’ programme, or slow it down.
QT involves the sale of UK gilts which the BoE bought to stimulate the economy after the 2008 financial crisis and the Covid-19 pandemic. It is controversial as the Bank is making a loss, by selling bonds for less than the value it paid for them under ‘quantitative easing’.
Professor Costas Milas, of the University of Liverpool’s management school, explains why the Bank might slow the pace of QT:
The ongoing global shock is indeed a challenge for Burnham as it puts firmly the focus on his fiscal intentions and whether next month’s Budget will raise taxes without doing much ( or anything) about lowering government expenditure. But let us not forget that the BoE’s policymakers will also decide in mid-September on UK interest rates and Quantitative Tightening (QT; or sales of government bonds) for the next 12 months.
With UK (and global) yields on the rise and Scott Bessent authorizing a buyback of U.S. debt to suppress, as much as he can, US yields, it will look very odd if the BoE’s policymakers decided to continue aggressively with QT action…
Competition watchdog takes a look at E.ON/Ovo deal
A deal to create the UK’s biggest energy supplier is to be probed by competition regulators.
The Competition and Markets Authority has announced it will start investigating the takeover of UK energy firm Ovo by German rival E.ON.
That deal, announced in May, would create a combined company with about 9.6m customers.
The CMA will now decide whether the deal could lead to a substantial lessening of competition, which could prompt a more detailed “Phase Two” investigation.
Charts: Borrowing costs and oil price rising
Here’s a chart showing how UK borrowing costs have risen again today: