Renewed fighting in Middle East weighs on financial markets; Shein shares tumble after Hong Kong stock market debut
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.
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.
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…
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