- The UK 30-year gilt yield hit 6% on Thursday for the first time since 1998, as a global bond sell-off deepened.
- The 10-year gilt touched about 5.5%, its highest since July 2007, while the US 10-year Treasury held near 5.3%.
- The FTSE 100 fell about 2%, one of Europe's worst performers, after posting its biggest monthly loss since March in September.
TL;DR
- What is happening: A global bond sell-off has pushed UK and US long-term borrowing costs to multi-decade highs, with the 30-year gilt yield hitting 6% for the first time since 1998. Oil-driven inflation, central banks turning back to rate rises and worries about government borrowing are behind it, while fiscal nerves ahead of Chancellor John Healey's 28 October Budget have left gilts among the weakest markets.
- Why blue chips have been it: With 10-year gilts paying more than 5% against a FTSE 100 dividend yield of roughly 3.1%, shares have lost their income advantage. Utilities, tobacco, consumer staples and indebted companies have been hit hardest, banks have fallen rather than benefited, and in the US only technology rose in September.
- What to watch: The US jobs report on 2 October, UK inflation on 21 October, the Budget on 28 October and the Bank of England on 5 November, where markets price roughly an 80% chance of a rise. A credible Budget could spark a relief rally, while any hint of looser fiscal rules risks pushing yields higher still.
How we got here
- Late February: War with Iran triggers an oil shock, the starting point for the year-long rise in gilt yields.
- 15 May: The 10-year gilt yield reaches 5.142%, and National Grid, United Utilities, Severn Trent and SSE each fall 4% to 5% in a day.
- 20 July: Andy Burnham becomes Prime Minister and appoints John Healey as Chancellor in place of Rachel Reeves. Burnham's promise to seek "any flexibility" within the fiscal rules sends the 10-year yield up 8 basis points (hundredths of a percentage point) to 5.03%.
- 1 September: The 30-year yield jumps about 10 basis points to 5.89%, then its highest since March 1998, as the global sell-off resumes.
- 16 September: The US Federal Reserve raises rates for the first time since 2023. Falling oil gives gilts a brief reprieve, and the 2-year yield posts its biggest one-day drop since May.
- 17 September: The Bank of England holds rates at 3.75% on a 6-3 vote and stops selling long-dated gilts.
- 18 September: The 10-year yield is back at 5.31%, and Lloyds falls 2.9%.
- 28 September: Housebuilders surge on the government's "Your First Home" scheme, with Persimmon up 15% and Barratt Redrow up 12%.
- 29 September: The Debt Management Office sells £4.25 billion of 10-year gilts at 5.383%, the highest 10-year borrowing cost at issuance since 1999.
- 1 October: The 30-year yield reaches 6%, and the FTSE 100 falls about 2%.
The gilt market
The 2-year gilt yield stood at 4.81% on Thursday, up 0.81 percentage points in a year, while the 10-year was 5.48%.
UK inflation reached 3.1% in August, its first reading above 3% since March, with petrol at 161.3p a litre.
Three of the nine Bank of England policymakers voted for a rate rise in September.
Governor Andrew Bailey warned that the longer energy volatility persists, the more likely the Bank will need to raise rates.
Markets now price close to an 80% chance of a rise to 4% on 5 November.
The Bank's decision to stop selling long-dated gilts, bought during its crisis-era quantitative easing programme, eased pressure for a day or two before the global sell-off overwhelmed it.
Higher borrowing costs have since wiped out roughly half of the Chancellor's £23.6 billion headroom against the fiscal rules.
With government debt close to £3 trillion and annual interest payments above £100 billion, small yield moves carry big costs.
The US Treasury market
The US 30-year Treasury yield reached 5.63% on 30 September, its highest since 2002.
The Federal Reserve's 12-0 vote took rates to 3.75% to 4%, the first increase under Chair Kevin Warsh.
"Very plainly, inflation is too high," Warsh said.
Policymakers' median forecast points to one more rise this year, though markets now see December as more likely than October.
August payrolls rose 162,000, roughly three times the consensus, and the September figures land on Friday.
Weak demand at government bond auctions has added to the pressure, with an August 30-year sale clearing at the highest yield since 2001.
President Trump has said US rates "should be 1%, or less", raising questions about Fed independence ahead of November's midterm elections.
Global picture
Japan's 10-year government bond yield reached about 3.10% on Thursday, its highest since 1996.
That matters because Japanese investors are among the biggest foreign buyers of gilts and Treasuries, and higher returns at home give them reason to stay there.
French 10-year yields of about 4.93% are now close to UK levels.
Global debt topped $365 trillion in the first half of 2026, according to the Institute of International Finance.
How yields hit blue chips
Higher yields raise the rate used to value future company profits, which makes shares worth less today.
JPMorgan said in September that the equity risk premium, the extra return investors expect for owning shares, had shrunk to its lowest since 2002.
"Bond proxies", the utilities, tobacco and consumer staples companies bought for steady income, have suffered most because they compete directly with gilts.
Many also carry heavy debt, so they take a second hit when they refinance at higher rates.
British American Tobacco fell 3.8% in early trade on Thursday, and SSE about 1.5%.
Banks, textbook winners from higher rates, have instead sold off as investors fear slower lending and rising bad debts.
Lloyds dropped about 3.2%, Barclays about 3% and HSBC about 3.7% in early trading.
Housebuilders have swung violently, though their late-September surge came from government policy rather than bond markets.
Shell and BP have been a partial offset, supported by the same oil price that is driving yields up.
The pound slipped to about $1.32 rather than rising, a sign investors see gilt yields as high for the wrong reasons.
A softer pound does help the FTSE 100's big dollar earners, which generate most of their revenue overseas.
Scoreboard
The FTSE 100 closed September at 10,606, still notching a seventh straight quarterly gain despite the monthly loss.
On Thursday, Games Workshop fell about 6.5%, while Rolls-Royce rose 1.9%.
On Wall Street, utilities, real estate and financials each fell 6% to 7% in September, while the Dow lost more than 4%.
Technology was the exception, rising about 5% as enthusiasm for artificial intelligence outweighed higher yields.
That leaves the US market narrow and vulnerable if yields climb further or AI earnings disappoint.
What to watch
The US September jobs report on Friday is the first test, with economists expecting about 84,000 new jobs.
UK inflation figures follow on 21 October, with a forecast of 3.4%.
The Budget and the Office for Budget Responsibility's forecasts on 28 October are the key UK event.
The Bank of England's decision on 5 November will show whether markets have priced the next rise correctly.
