UK bond yields hit a 27-year high. EU bonds are also at their peak

The yield on 30-year government bonds of Great Britain rose to the highest level since 1998. At the same time, bonds of other European countries reached multi-year highs, British shares fell in price by more than 2%, and the pound sterling fell to the dollar to its lowest level since April. Behind this there are reasons more significant and deeper than just news or some statistical data, Bloomberg writes

The yield on 30-year U.K. Treasury bonds reached 5.7% at the auction on September 2, which became the maximum since 1998, Bloomberg reports. The yield on 10-year bonds added 6 basis points and rose to the maximum since January, the agency added.

Similar dynamics on Tuesday showed bonds in European markets and in the United States. For example, yields on 30-year bonds of Germany, France and the Netherlands reached the highest levels since 2011, writes CNBC. In the U.S., 30-year trijeris added 6 basis points, 10-years rose more than 7 points and two-years rose 4 points. U.S. indices at the opening of the first trades after a long weekend fell more than 1%.

Along with the growth of yields on government bonds of Great Britain, about 220 shares of the British index FTSE 250, especially securities of companies in the commercial real estate and housing construction, Bloomberg writes. Shares came under pressure due to worsening prospects for rate cuts to support the housing market. Banks and retailers, including B&M and Dunelm, were also in the negative.

The entire FTSE 250 index fell by more than 2%, its strongest decline since at least Ma. Unlike the FTSE 100, which is dominated by international corporations, the FTSE 250 more accurately reflects the attitude of investors to the British economy, as it is dominated by domestic market companies, explains Bloomberg.

The British pound was down 1.5 percent at once - the exchange rate held just above $1.33 to the U.S. dollar - its biggest drop since April 4.

There are no obvious reasons for the growth of yields of British government bonds on Tuesday: there were no new statistics or statements of the authorities, notes Bloomberg. The movement on the markets, rather, is explained by psychological reasons, the agency suggested.

The growth of 30-year bond yields reflects investors' concerns about the fiscal policy of the UK, according to Bloomberg. The country has a budget deficit: the government spends more than it receives and has to borrow money to close the gap. And investors demand more return for lending to the state: for London it is a signal that the cost of borrowing will grow, the agency suggested.

It's not just the U.K. that faces the same fundamental budget deficit problem as other European countries: amid weak growth and aging populations, tax revenues are simply not keeping pace with spending growth, Bloomberg added.

"A new wave of sovereign risk is hitting European economies, with the U.K. and France most vulnerable amid fiscal fragility, political instability and falling confidence in the bond market," Ed Yardeni, president and chief investment strategist at Yardeni Research, said in a CNBC story.

This article was AI-translated and verified by a human editor