Britain's 30-year gilt yield hit 6% on Thursday, its highest level since February 1998, as a sell-off in global sovereign bonds deepened. The move lands just as France prepares to unveil a 2027 budget meant to narrow its swelling deficit, with bond investors demanding significantly higher term premia across Germany, France and Japan.
Britain's 30-year gilt yield rose to 6% on Thursday, its highest level since February 1998. The jump follows Britain's Tuesday syndication of new 10-year benchmark bonds, which were priced to pay the highest yields for that maturity since 1999.
French budget lands amid record debt
French Prime Minister Sébastien Lecornu is due to unveil the country's 2027 draft budget on Thursday, targeting €54 billion in fiscal consolidation as his government works to rein in public spending. France's budget deficit is projected to hit 5.4% of GDP this year, with public debt nearing 120% of GDP, a record peak built up over President Emmanuel Macron's two terms. The spread between 10-year French OATs and German Bunds has widened to a 14-year high, touching 128.80 basis points before easing to 127.51 bps, Reuters reports. France's own 10-year yield has climbed to 4.96%, its highest level since July 2002, according to Reuters.
Susannah Streeter, chief investment strategist at Wealth Club, says the bond market is "flashing warning lights".
Energy and Fed worries deepen the sell-off
The sell-off is also being driven by Brent crude trading past $106 a barrel after stalled Middle East diplomacy, alongside aggressive tightening from the Fed, the ECB and the RBA.
Markets now price a 63% chance the Federal Reserve raises interest rates again at its upcoming meeting, even after a softer U.S. inflation print offered brief relief to long-dated Treasuries. London's FTSE 100 dropped 1.1% to 10,489 points at the start of trading, with British American Tobacco and Weir among the top fallers.
Britain has struggled to rein in growing costs for state pensions and social programs, while political pressure builds from Andy Burnham and regional leaders to expand defence spending. Similar fiscal strains in Germany, France and Japan have pushed global bond investors to demand higher term premia for new debt.
Sources: Investing.com, The Guardian
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