Long-term gilt yields hit highest level in decades as bond rout continues
The global bond rout deepened on Wednesday sending borrowing costs on some of the longest-dated UK government debt to their highest levels in decades.
The yield on the 30-year gilt climbed to 5.07 per cent, its highest level since 1998, while the yield on the 10-year gilt meanwhile climbed to 4.63 per cent, which is the highest level since mid-2008. Prices and yields move inversely.
Elsewhere, yields on both 10-year and 30-year Treasuries reached their highest level since mid-2007. Yields on the 10-year and 30-year German Bund meanwhile reached the highest levels since the eurozone crisis in 2011. The Bund acts as a benchmark for eurozone borrowing costs.
Higher yields mean that investors are owed larger interest payments by bond issuers. Yields are closely connected to interest rate expectations and also indicate credit risk.
The rise in bond yields continues the bond sell-off, which picked up pace last week as investors grew increasingly convinced that interest rates would have to remain higher for longer.
A string of strong data from the US this week, including a more resilient than expected manufacturing sector and a surge in hiring, has done nothing to dent this conviction.
Gordon Shannon, portfolio manager at Twentyfour Asset Management, said: “The soft landing fairy tale that the market has lulled itself into believing for the past year depended upon not only central banks quashing inflation but them doing this divisively enough that base rates could swiftly return to QE era normality.
“While headline inflation rates have fallen globally, the persistence of core inflation and wage growth has culminated into central bankers signalling tight monetary policy must continue.
“Investors are gradually catching on to the implications of waiting longer for fewer rate cuts.”
While the recognition that rates will have to remain higher for longer has pushed bond yields higher, markets are also predicting that government debt will have to remain higher for longer too.
With governments around the world likely to face growing pressure on their finances and central banks selling bonds back into the market after its programme of quantitative easing, there is likely to be a deluge of new supply which will push prices lower.
Finalto’s Neil Wilson said “someone else has to buy the debt and there is a lot more of it now. This can only result in lower prices and higher yields, he said.
“The great bond bull market is dead, a new bear market is taking over. This is the paradigm shift we have been talking about for at least the last three years,” Wilson said.