The FTSE 100 fell 0.36% on Wednesday as a global bond market sell-off pushed UK 10-year borrowing costs to their highest level since June 2008. Oil prices climbing on renewed US-Iran tension and Federal Reserve rate-hike bets added to the pressure, eroding the fiscal headroom Chancellor John Healey has ahead of the autumn budget.
UK government borrowing costs hit their highest level since the 2008 financial crisis on Wednesday, as a bond market sell-off pushed the FTSE 100 down 39 points, or 0.36% in early trading.
UK gilt yields hit 2008 highs
The yield on 10-year gilts jumped four basis points to 5.268%, the highest since June 2008, Reuters reports. Thirty-year gilt yields also rose five basis points to almost 5.89%, close to the highs seen the previous day. Germany's 10-year bund yield reached its highest level since April 2011, up 3.8 basis points to 3.3763%, underlining that the sell-off in government debt is a global one.
FTSE fallers led by Computacenter
Technology and services group Computacenter was the top faller, down 3.5%, followed by sports and leisurewear retailer JD Sports, down 2%.
Oil and Fed bets add to the pressure
Renewed US strikes on Iranian military and tanker targets pushed oil prices to around $95 a barrel, a five-week high, according to Cavendish's Roger Lee. The US dollar climbed to its highest level in over two weeks as traders raised bets on a rate hike from the Federal Reserve in September. This pushed the pound below $1.35 for the first time since 14 August. The euro dipped to $1.1575, its lowest since 18 August.
Budget headroom shrinks for Burnham and Healey
The moves erode the fiscal headroom available to Chancellor John Healey ahead of the autumn budget. According to Daniel Mahoney, senior UK economist at Handelsbanken: "has hit levels last seen during the Global Financial Crisis". Mahoney said the moves add to the likelihood of fresh tax increases being announced on 28 October.
Source: The Guardian
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