The FTSE 100 fell to its lowest level in eight months and Gilt yields reached a record high of 15 years as investors feared that interest rates would continue to rise.
The yields on UK 10-year government bonds, a key economic indicator, rose to their highest level since 2008, surpassing the highs they reached in the fall of last year, when the fallout was caused by Liz Truss’ “mini budget”. The yields on UK government bonds of 10 years, a key economic indicator, rose above the peak they reached last autumn during from the “mini budget” of Liz Truss to reach their highest levels since 2008.
The FTSE 100, meanwhile, was caught in a global sell-off. The FTSE 100 index, which has been the most volatile of the year, closed at 7,280.50, down by 2.2 percent, or 161.6 point. The FTSE 250, which is more focused on the domestic market, closed down 2.6 percent, or 476.87 point, at 17,916.46.
The stock markets fell further after an unexpectedly high private payrolls report was released in the United States, before today’s official statistics. This strengthened expectations for another rate hike.
After the release of the report, the dollar rose, putting pressure on the pound which remained at $1.27. Investors reacted to a report that US employers created 497,000 new jobs in the private sector last month. This was far more than the economists’ forecast of 220,000.
The Federal Reserve is weighing up whether or not to raise rates in the next few weeks.
Bank of England will likely raise borrowing costs to their highest level in 25 years by the beginning of next year. The data from futures markets suggests that the chances of interest rates reaching 6.5 percent by February, up from 5% at present, are about two-thirds. The US markets have priced in an interest rate increase at the Fed meeting this month. According to CME’s FedWatch, traders see a 92% chance of an increase.
The yield on UK 10 year government bonds increased by 20 basis points in a single day to 4.703%. The yields on two-year bonds, which are the most sensitive to expectations of interest rates, increased by 18 basis points, to 5.560%.
Bond prices and yields are inversely related. The benchmark US Treasury 10-year yield increased 11 basis points, to 4.055 percent, its highest level in four months. The yield on the 2-year bond increased by 15 basis point to 5.101 percent, which is its highest level since 2007.
MSCI’s global stock index suffered its largest one-day percentage drop since the beginning of the year. The Dow Jones Industrial Average fell 1.1 percent and the S&P 500 dropped 0.8 percent on Wall Street. The Nasdaq, which is a tech-oriented stock market, fell by 0.8 percent.