UK government bonds hit by inflationary pressures

Investors pulled out of UK gilts on Monday, sending the benchmark measure of government borrowing costs to its highest level in around two and a half years, after Bank of England policymakers said they were closer to raising interest rates to fight inflation.

Meanwhile, European stocks and Wall Street stock futures softened, as questions intensified about global inflationary pressures ahead of US consumer price data later in the year. week.

The yield on the UK 10-year government bond, which moves in the opposite direction of its price, rose 0.06 percentage points to exceed 1.2% on Monday for the first time since May 2019.

BoE Governor Andrew Bailey said in an interview with the Yorkshire Post on Saturday that he was “concerned about inflation” and that the BoE had a difficult job to do to prevent high inflation expectations from rising. anchor.

“The bond market is very focused on the UK as it looks likely to rise [interest] rates fairly quickly, ”said Anne Beaudu, global bond portfolio manager at Amundi. “Everyone is worried about inflation everywhere,” she added, but the UK was “singled out” because of soaring fuel prices and a labor shortage. work related to Brexit as well as Covid-19.

Public debt prices fall when expectations of prolonged inflation or higher interest rates make their fixed income payments relatively less attractive.

In stock markets, the regional Stoxx Europe 600 stock index fell 0.4% at the start of trading, taking it to more than 4% below its all-time high reached in late August before soaring prices in the stock market. energy does shine on the rebound in eurozone profits. recession last year. London’s FTSE 100 traded flat.

European gas contracts for November delivery rose 2.9% to € 86.2 per megawatt hour, remaining below the record € 117.5 reached last week before Russian President Vladimir Putin only reported the country could increase its supplies.

Brent crude, the international benchmark for oil, rose 1.4% to $ 83.5 per barrel, near its highest level in three years.

Futures markets have indicated that the S&P 500 stock index will fall 0.3% at the start of trading in New York, while the technology-heavy Nasdaq Composite will lose 0.4%. The US bond markets were closed for Columbus Day.

Economists polled by Reuters expect data released on Wednesday to show US consumer prices up 5.3% in September from the same period last year, marking the fourth month in a row where the headline inflation rate in the world’s largest economy has exceeded 5%.

Investors this week will examine third-quarter earnings reports from major U.S. banks and consumer-oriented companies, looking for clues about the effects of high energy prices and chain bottlenecks. supply linked to the pandemic on business costs and consumer spending.

“The big questions this week are not only the rate of inflation, but also the levels of costs that companies can now pass on to consumers,” said Aneeka Gupta, research director at ETF provider WisdomTree.

“The risk is that the profit cycle will erode,” she added, while the rise in prices made central banks in the United States and the euro zone less comfortable to hold rates. record interest.

The 10-year German Bund yield rose 0.02 percentage point to minus 0.126 percent, its highest level since May. The equivalent French yield added 0.05 percentage point to 0.206 percent.

In Asia, the Hong Kong Hang Seng stock index rose 1.9%, led by Chinese tech stocks, with investors hoping the Beijing government to ease regulatory crackdown on the industry.

China’s competition regulator last Friday fined online food delivery group Meituan Rmb3.4 billion ($ 530 million) for abusing its market position. But the penalty was lower than analysts had expected.