Government borrowing costs jumped across the United States, Britain and France on Wednesday as Brent crude's climb back above $101 a barrel revived fears that stubborn inflation will keep central banks restrictive for longer, reversing a brief calm in bond markets a day earlier.
The yield on the benchmark 10-year French OAT rose as much as 12 basis points to 4.85%, erasing Tuesday's roughly 11-basis-point drop. The euro slipped 0.6% against the dollar to below $1.12. The 10-year UK gilt yield climbed 4.6 basis points to 5.42%, within striking distance of the 19-year peak of 5.51% it touched last week, while the 10-year US Treasury yield rose 4 basis points to 5.31%, according to Wednesday trading reported by the Guardian's markets desk.
Oil and debt worries feed off each other
The move extends a pattern that has been building for weeks. US Treasury yields touched their highest level since 2007 last month as oil prices and resilient economic data fueled bets that the Federal Reserve would need to keep policy tight, a dynamic tracked by Al Jazeera as crude first pushed through $100 a barrel in September. Wednesday's renewed selloff came hours after IMF Managing Director Kristalina Georgieva told reporters that oil prices, trade tariffs and heavy government borrowing were combining to keep inflation elevated, and that a "prudently hawkish" stance now made sense for many central banks.
Equity markets felt the squeeze too. London's FTSE 100 fell 41 points, or 0.4%, to 10,500. Germany's Dax and Spain's Ibex each lost 0.8%, France's CAC dropped 0.6% and Italy's FTSE MiB slid 1.3%.
The French move was the sharpest of the session. Traders have been on edge ahead of UK Chancellor John Healey's first budget on October 28, after he met with primary dealers this week to gauge appetite ahead of gilt auctions. Economists at Bank of America are forecasting the budget will add roughly £15 billion to public borrowing in both the current financial year and the next, leaving the government with less room to hit its longer-term fiscal targets — the same kind of structural debt pressure Georgieva flagged hours earlier on a global scale.
Two-year and five-year gilt auctions later Wednesday were expected to offer the clearest read yet on whether investors are willing to keep absorbing UK debt at current yields, with dealers watching closely for any sign of weak demand that could push borrowing costs higher still.
