UK Government Bond 3M

The Euro weakened against the British Pound to around 0.8475 in early European trading on Monday, pressured by French fiscal concerns following a steep bond market rout that stoked contagion fears across the Eurozone. Analysts at Brown Brothers Harriman noted that France's minority government has presented a plan to cut the budget deficit to 5.0% of GDP next year, but doubt the proposal will clear parliament without significant concessions, and warned that a rollover of the 2026 budget could push the deficit from 5.4% of GDP in 2026 to roughly 6.0% in 2027, moving France further from its European Commission commitment to bring the shortfall below 3% by 2029. Brent Donnelly, president of foreign exchange trading at Spectra Markets, said any budget promises made by the French government now are not very credible with a change of power coming soon. On the monetary policy side, Bank of England policymaker Catherine Mann said a rate hike is needed to manage inflationary risks, and markets are currently discounting roughly 30 basis points of rate hikes by the UK central bank through the end of the year, alongside approximately 90 basis points of cumulative tightening through 2027. On the daily chart, EUR/GBP remains capped below its key moving averages, with initial resistance at the Bollinger lower band around 0.8500 and further barriers at the Bollinger midline near 0.8565 and the 100-day simple moving average at 0.8580.

The UK issued benchmark 10-year government bonds on the 29th, with the average yield reaching its highest level since 1999. According to the UK Debt Management Office, the 10-year bond auction of 4.25 billion pounds, or 5.62 billion dollars, had an average yield of 5.383%, the highest since September 1999, when it stood at 5.694%. Bids from investors reached 3.34 times the planned issuance amount, reflecting relatively solid demand. The 10-year bond yield in the secondary market reached 5.441% on the 28th, the highest level since July 2007, and these rising interest rates are weighing on the country's finances.

Bank of England Governor Andrew Bailey indicated that a prolonged energy shock would increase the likelihood of an interest rate hike. Speaking on the 25th at a panel discussion at an event in Oxford co-hosted by the University of Oxford and the New York Fed, Bailey said the Bank of England has held its policy rate steady since the conflict in the Middle East began, but that the longer energy prices stay elevated, "the harder it will be to maintain that stance." He also noted that policymakers cannot wait for conclusive evidence of second-round effects before moving to raise rates, adding that "by the time that evidence arrives, it will already be too late."

Bank of England Monetary Policy Committee member Dingra said on the 24th that the long-term inflation impact on the UK from higher crude oil prices amid escalating US-Iran tensions will become evident in winter, when energy demand rises. He said medium-term inflation factors will also begin to become clearer by the end of the year, signaling caution about early rate cuts. Speaking at a meeting of the UK think tank the National Institute of Economic and Social Research, Dingra said more will be known about the course of wage negotiations and their final level as winter approaches, and noted that monetary tightening is already underway. On the other hand, he said there has not been the broad-based price surge seen in 2022, when energy prices spiked following Russia's invasion of Ukraine, and the labor market is also softening, arguing that with UK demand levels below those of the United States and the benchmark rate higher than in the euro area, the Bank of England's decision to hold rates was appropriate. Dingra supported holding rates steady at this month's Monetary Policy Committee meeting. He also suggested that the expanding use of artificial intelligence could lead to slower inflation in the services sector, and said the UK's medium-term inflation expectations are not at a concerning level. Bank of England Deputy Governor Lombardelli also said on the 24th that unless the economic slowdown becomes pronounced, rate hikes will be necessary in response to persistently high energy prices.

Kasikorn Securities assesses that the SET Index today will move in a range of 1,570-1,600 points, with the market beginning to see buying return after passing the Fed meeting, which raised rates as expected. Although there is still a chance of further increases, the next direction will depend mainly on inflation data. Earlier, the SET Index closed at 1,583.34 points, up 20.61 points, or 1.32%, with foreign investors returning to net buy Thai stocks of 1.651 billion baht. A positive factor came from the Brent crude oil price falling to 104.8 dollars per barrel after Saudi Arabia diverted some oil exports through Oman and accelerated the restoration of the East-West pipeline, while the yield on 10-year US government bonds fell 8.8 basis points to close at 4.93%. Meanwhile, the Bank of England voted 6 to 3 to keep interest rates at 3.75% and temporarily halt active government bond sales. Today, the market must also monitor the Bank of Japan meeting, which is expected to raise interest rates by 0.25%, along with remarks from Governor Kazuo Ueda, and late in the session there is FTSE Rebalancing, which is expected to support fund flows and increase volatility in individual stocks. The short-term strategy focuses on gradually accumulating stocks that have corrected sharply but whose fundamentals and earnings outlook remain strong, with today's standout stocks being DELTA and ADVANC.

The Bank of England announced on the 17th that it will halt sales of government gilts for the next six months and completely end sales of long-dated bonds. The announcement came alongside its decision to hold the policy rate, which was left unchanged as markets expected. The central bank set out a plan to reduce the bulk of its 488 billion pounds of government bond holdings by 2034, with the decision approved by a vote of 9 to 0. Under the new plan, the Bank will cut its gilt holdings held for monetary policy purposes to zero, keeping 120 billion pounds of the 488 billion pound total, comprising bonds maturing from 2049 onward, permanently on its balance sheet as backing for banknote issuance. It will hold 222 billion pounds maturing by 2034 to maturity, while selling the remaining 146 billion pounds maturing between 2035 and 2049, equivalent to 20 billion pounds of sales a year, with average annual reductions including maturities amounting to 46 billion pounds. The Bank also said it will suspend all sales until April while it consults the government on a method of selling gilts directly to the Debt Management Office at market prices instead of conducting its own auctions. After the announcement, gilt yields fell 6 to 8 basis points.

The Bank of England decided on the 17th to hold its policy rate at 3.75%, again by a 6-3 majority. Three members of the Monetary Policy Committee backed a rise to 4%, matching the expectations of a Reuters poll of economists. The central bank projected that UK inflation would exceed 4% in early 2027, and Governor Bailey indicated that a prolonged conflict in the Middle East could make monetary tightening necessary. It also made the unexpected decision to halt all government bond sales for the next six months. The Bank raised its forecast for third-quarter economic growth to 0.4% from 0.1%, while noting that inflation, which stood at 3.1% in August, could be slightly above 4% in early 2027.

The Bank of England is likely to keep its policy rate unchanged at 3.75% at today's meeting, while sharply rising energy prices are adding pressure that it may have to follow the US Federal Reserve, which raised rates yesterday. UK natural gas futures and Brent crude prices have jumped nearly 20% this month, bad news for Britain, which relies heavily on energy imports. Most economists surveyed by Reuters last week expect the BoE to hold rates until the end of this year, with only about three of the nine members of the Monetary Policy Committee expected to vote for a hike at this meeting, while financial markets yesterday priced in an 80% chance that the BoE will raise rates by 0.25% in November, which would be the first of about four increases investors expect over the next 12 months. But only about one in eight of the respondents to the Reuters poll expect the BoE to raise rates in November.

Bank of England Governor Andrew Bailey said on Thursday that public debt in advanced economies has expanded due to weak productivity and the COVID-19 pandemic, pushing up borrowing costs. At a meeting hosted by the London School of Economics, he noted that an aging population and plans to increase defense spending are also important factors. He also pointed to a correlation with why French government bond yields are higher than those of L'Oreal, noting that bond yields have risen sharply in recent months, with the 10-year UK gilt yield reaching its highest level in about two decades. Furthermore, he stated that Federal Reserve Chair Kevin Warsh is right to see dangers in forward guidance, and that central banks should avoid unconditional guidance.

Huw Pill, chief economist at the Bank of England, said on the 3rd that raising interest rates now could reduce the likelihood of having to take more aggressive measures later to curb inflation accelerated by the Iran war. In a speech prepared for the Edinburgh Chamber of Commerce, Pill noted that "a rise in the policy rate does not need to be the start of a prolonged period of aggressive consecutive hikes," and that a prompt increase in the policy rate, if effectively implemented and communicated, could help prevent inflation from persistently overshooting its target through wage and price "catch-up" dynamics. He added, "For my own part, I have concluded that the policy rate needs to be raised to 4%." Pill also expressed the view that "fine-tuning" the policy rate amid uncertainty over energy prices is problematic. Three members of the Monetary Policy Committee (MPC), including Pill, voted for a rate hike at the July meeting, while the remaining six supported holding rates steady, preferring to wait for the impact of the Middle East conflict on longer-term inflation pressures.

CNBC reports that global bond markets are facing heavy selling pressure, pushing bond yields to multi-year highs and raising borrowing costs across the economy—from governments and businesses to households—amid signs that the world may have to live with expensive money for years to come. Germany's 10-year bond yield has risen to its highest level since 2011, while Japan's stands above 3%. The U.S. 10-year yield has hit its highest level since November 2023, and the UK's has reached its highest since the 2008 financial crisis. The bond sell-off is driven by several factors, including heavy government bond issuance, rising oil prices, and expectations that central banks worldwide may maintain tight policies longer than anticipated. Robin Brooks, a senior fellow at the Brookings Institution, views this as a medium-term trend that could persist for several years. Governments with high debt and large deficits, particularly France and Japan—which have debt exceeding 200% of GDP—will be especially vulnerable. Businesses, especially small companies and the commercial real estate sector, will face higher refinancing costs, while low-income households will feel the impact first from increased debt burdens. Deutsche Bank estimates that the U.S. 10-year bond yield could rise to 5.5% within a year and 6.4% within two years, which would make total returns on holding bonds negative. Overall, if the world enters a high-interest-rate era, the heaviest burden will fall on highly indebted governments, companies reliant on borrowing, and low-income households, while investors holding cash may benefit from higher returns.

The yield on 10-year UK government bonds has surged to 5.268%, the highest level since 2008, or in over 18 years. This may force the UK government to raise taxes or reduce spending by approximately £11 billion per year to restore its significantly diminished fiscal headroom. Economists at Pantheon Macroeconomics estimate that the government's fiscal headroom has fallen to just around £13 billion, down from £23.6 billion, after bond yields surged amid a global sell-off in bonds, driven by concerns over inflation stemming from the Iran war and higher oil prices. The rise in borrowing costs comes as the government, led by Prime Minister Andy Burnham and Chancellor of the Exchequer John Healey, prepares to deliver its first budget on October 28. The 5-year bond yield has also climbed to 4.7534%, the highest since October 2023.

Global bond markets were hit by heavy selling on Tuesday, pushing bond yields worldwide higher amid concerns over inflation and government debt burdens. Japan's 10-year bond yield touched 3% for the first time since 1996, while Germany hit a 15-year high and the UK reached its highest level since 2008. In the US, the 10-year yield rose 3.8 basis points to 4.796%, near its 2023 peak. Surging government debt, particularly in the US where it has reached $40 trillion, has investors worried about potential structural issues. Meanwhile, geopolitical conflicts are adding upward pressure on energy prices. David Krakauer from Mercer Advisors noted that the main drivers are domestic to the US, such as deficit spending and higher debt servicing costs. Several governments are beginning to show concern, with the US Treasury intervening in the market in August to curb the rise in yields. Additionally, massive bond issuance by tech companies to fund AI is adding further pressure on the market.

A global bond selloff that pushed yields to two-decade highs has made government debt the main concern on Wall Street, overshadowing the AI boom. Yields surged in the U.S., U.K., France, Germany, and Japan as investors lost patience with persistent deficits and heavy government borrowing. The Treasury Department announced increased buybacks of long-dated bonds, but yields resumed their climb as investors doubted the move would stem the tide. Economists including RSM's Joseph Brusuelas and Capital Economics analysts said markets are now demanding higher term premiums for fiscal, geopolitical, and policy uncertainty, and warned that continued populist spending and tax cuts could eventually trigger banking or currency crises.

Bond markets around the world are facing one of the largest selloffs of long-term government bonds in history, pushing yields sharply higher and driving long-term borrowing costs for governments and the private sector to their highest levels in a decade. In the United States, the yield on the 30-year Treasury bond climbed to 5.32 percent, its highest level since mid-2007, while French government borrowing costs surged to 4.87 percent, the highest since 2008. German and UK government bonds also hit multi-year highs, and Japan saw yields rise close to 4.07 percent. The main factors driving this crisis include geopolitical risks that are pushing energy prices higher, persistent inflation that is forcing central banks to keep interest rates elevated for longer, and concerns about fiscal discipline among governments that are issuing large amounts of debt. At the same time, the structure of global bond holders is changing, as pension funds and the public sector reduce their holdings of long-term bonds and shift more into equity markets. This leaves the market more reliant on price-sensitive private investors, raising the risk premium for holding long-term bonds, and the higher interest burden will be passed on to businesses and households through more expensive borrowing costs.

Global bond yields have reached levels last seen in July 2008, before Bitcoin existed, and the cryptocurrency is not benefiting. A Bloomberg gauge of long-dated government debt hit its highest yield since July 2008 in May, while Bitcoin has fallen 46% over the past year compared with gold's 32% rise. UK 10-year gilts pay 5.05%, Germany sits at 3.21%, and Japan pays 2.88% after decades near zero. The US 10-year real yield reached 2.41% on August 14, meaning investors can now beat inflation with government debt and take almost no risk, while Bitcoin pays nothing. Barclays strategist Patrick Coffey attributed the move to fiscal realities, persistent inflation risks, and political uncertainty.