The pan-European STOXX 600 closed 1.3% lower on Thursday, its biggest one-day drop in three weeks, as surging global bond yields hammered bank stocks at the start of the final quarter. UK lenders HSBC, Barclays and Lloyds each fell more than 4%, while France's CAC 40 dropped 1.6% ahead of a 2027 budget bill with unpopular belt-tightening measures.
Banks lead the selloff
The pan-European STOXX 600 closed 1.3% lower, touching its lowest level in more than three months. Banks registered their sharpest daily fall since March 3, down 3.7%. UK banks HSBC and Barclays dropped 4.1% each, and Lloyds lost 4.5% as jitters mounted about Britain's finances ahead of this month's budget.
France felt the pressure too. The CAC 40 fell 1.6% as the French 10-year government bond yield jumped to its highest level since 2002, in the build-up to the government's presentation of its 2027 budget bill, which included unpopular belt-tightening measures.
Yields climb as rate-cut bets fade
Global bond yields have surged in recent weeks as investors sold government debt. Soaring energy costs fueled inflation concerns, and the AI boom bolstered the economic outlook, reinforcing bets that interest rates could remain higher for longer. Persistently high rates raise borrowing costs for companies and mortgage holders, while increasing governments' interest burdens.
Germany's 10-year government bond yield edged back 5.9 basis points after touching 3.6526% earlier this week, its highest level since June 2009. According to Reuters, Tim Armitage, investment strategist at Quilter Cheviot, said "economies are holding up well in the face of tightening monetary policy" despite the recent strain on both bonds and equities.
Growth data complicates the picture
Data on Wednesday showed German inflation accelerated slightly more than expected in September. Separately, euro zone unemployment stood at 6.4% in August, in line with economists' expectations in a Reuters poll. Markets are weighing whether resilient growth will keep pushing rate-hike expectations higher, pressuring both equities and fixed income at once.
Winners and losers
Not every stock fell. Capgemini jumped 7.3% to top the STOXX 600 after Accenture's upbeat annual revenue growth forecast, and the broader tech index gained 0.5%. Zealand Pharma slumped 6.1% after trial results for Boehringer Ingelheim's obesity drug survodutide. Oil prices held firm as recovering Gulf crude exports and a surprise rise in US inventories eased supply concerns.
Source: Investing.com
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