Global bond sell-off deepens amid fears US economy may be running too hot – business live

Bond traders are also alarmed that the oil price remains stubbornly over $100 a barrel.

After dropping below that level on Monday, and again on Tuesday, and Wednesday, Brent crude is now changing hands for $103.26 a barrel.

Derek Halpenny of MUFG bank says;

Brent crude oil is up close to 6% from the lows yesterday. The speech by President Pezeshkian of Iran at the UN yesterday did not suggest prospects for imminent peace were good.

There has also been a notable pick-up in reports that the US administration will soon announce an export ban on diesel. This would likely lead to further rises in diesel on international markets and could also lift gasoline prices in the US with the surplus diesel in the US causing crude oil refiners to cut production of not just diesel but gasoline as well.

UK government bond prices are weakening a little in early trading.

This has pushed the yield on 10-year UK gilts up by 2 basis points to 5.34%, towards the 19-year high set last week.

Thirty-year gilt yields are also up 2bps to 5.82%.

Small moves, but not the direction HM Treasury wants to see….

The US economy may be growing too fast for investors, but it’s a different picture in developing markets.

The European Bank for Reconstruction and Development warned this morning that growth is slowing across a range of emerging market nations.

Across the 41 economies it covers, the EBRD expects growth of 2.5% this year, 0.6 percentage points below its June forecast.

The EBRD says Iraq, Lebanon and Ukraine’s economies are suffering from the effects of war, and that high energy prices, rising borrowing costs, droughts in Europe and the ongoing closure of the Strait of Hormuz are combining to depress economic growth.

UK government debt was caught up in yesterday’s bond sell-off too, with the yield on 10-year gilts jumping by 10 basis points (0.1 of a percentage point), towards its highest level since the 2007 financial crisis.

Rising gilt yields will eat into the government’s ‘headroom’ to keep within its fiscal rules, as they show the cost of servicing the national debt, and issuing new bonds, has risen.

Rachel Reeves left her successor, John Healey, a buffer of over £23bn to be keeping within the fiscal rules (to have day-to-day spending covered by tax receipts, and for the debt to be falling as a share of the economy).

With government spending running above forecast so far this year, many City economists have already predicted that this headroom has shrunk.

And the Financial Times is reporting this morning that the UK government might accept a smaller fiscal buffer, rather than raise taxes to reinforce the headroom.

They say:

Government figures are preparing to argue that maintaining March’s buffer is unnecessary at a time when borrowing and energy costs have risen sharply.

One person involved in the government’s discussions has suggested that headroom of £15bn would be sufficient, while another suggested closer to £20bn, and a third said no figure was yet being targeted.

Another senior government figure said there was “no magic figure” to demonstrate credibility to the market, arguing that Britain’s plan for rapid deficit reduction was potentially more important to borrowers.

Japan’s government bond yields have climbed to multi-decade highs today, as the sell-off continues.

Bloomberg has the details:

The 10-year yield rose 10 basis points to 3.075% on Thursday, its highest since 1996, after the three-day break. The five-and 20-year rates also gained about 10 basis points each to 2.375% and 3.915%, respectively.

Financial markets are now much more confident that the US Federal Reserve will raise interest rates rates at least one more time this year.

According to CME Fedwatch, there’s now a 55% chance that US rates are half a percentage point higher by the end of December – implying two quarter-point rate rises (or one beefy hike!). That’s on top of the Fed’s hike earlier this month.

Jim Reid, market strategist at Deutsche Bank, says:

The main story is still the huge global bond selloff, with yesterday seeing the biggest jump in the 10yr Treasury yield (+15.2bps) since the market turmoil around Liberation Day in April 2025.

The main driver was a strong batch of PMIs, along with a rebound in oil prices, which both led to mounting speculation about faster rate hikes. Indeed, futures this morning are pricing a 71% chance of a Fed rate hike at the next meeting in October.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Trouble is brewing in the bond markets again, as investors grow more concerned about inflation, and signs that the US economy may be running too hot.

Government borrowing costs jumped yesterday, and are rising again in Asia-Pacific markets this morning, a move that is pulling down share prices.

Yesterday’s trigger was a surprisingly strong survey of US businesses – as we covered yesterday – showing that activity was rising at the fastest pace in five years, amid a surge in costs.

This prompted a sell-off in US government bonds, as traders calculated that this might prompt further rises in US interest rates to cool inflation.

Chris Weston, head of research at brokerage Pepperstone, says:

With unemployment at 4.1% and growth running above trend, the US economy is showing signs of modest overheating. The Federal Reserve will therefore be firmly on notice.

If the next inflation readings continue to print hot, policymakers may conclude that aggregate demand needs to be brought lower through the blunt tool of higher interest rates.

Investors were also alarmed by a surprisingly weak auction of US five-year bonds last night, which attracted low demand – perhaps a sign that appetite for Treasury bonds is waning…

Cue the sell-off! With bond prices sliding, the yield (or rate of return) on five-year US Treasuries was driven over 5% for the first time since 2007. 10-year US Treasury yields surged over 5%, in their biggest one-day move since Donald Trump’s ‘Liberation Day’ tariff announcement almost 18 months ago.

These moves are rattling the wider global bond market (as US debt is the ‘risk-free’ asset used as a benchmark by global financial markets).

Already today, yields on Japan’s benchmark bonds have hit their highest level in decades.

Ipek Ozkardeskaya, senior analyst at Swissquote, explains why markets were rattled:

In the US, flash PMI figures for September showed activity expanding at the fastest pace in more than five years. New orders grew at the fastest pace since April 2022, while manufacturing hiring was the strongest since February 2021.

Massive AI investment and resilient consumer spending outweighed energy-price-led worries, though supplier delivery times stretched, according to the same data, while input costs remained elevated due to high energy prices and supply-chain pressures.

In other words, economic activity expanded strongly while price pressures remained elevated. That’s the perfect combination for fuelling further rate-hike expectations.

The agenda

• 11am BST: CBI distributive trades survey of UK retailers

• 8.30am BST: Swiss National Bank’s interest rate decision

• 1.30pm BST: US jobless claims data

• 3pm BST: Bank of England’s Clare Lombardelli speech on “Macroeconomic Policy in a Heterogeneous and Imperfectly Rational World”