Yields soar amid global bond rout, as concerns mount over the UK and France’s debt

Government bond markets are in the midst of a global selloff amid rising government borrowing and debt levels and uncertainty over the trajectory of US tariffs. Yields — which reflect the level of risk investors demand to hold a country’s debt — are rising to record levels. The bond rout also led to a selloff across equities — with the S&P 500, Nasdaq, FTSE 100, and Euro Stoxx 50 all down.

UK borrowing costs surged to their highest in nearly three decades, sending the GBP lower and piling pressure on Prime Minister Keir Starmer’s government ahead of its Autumn budget, the Financial Times and Bloomberg report. The yield on 30-year gilts climbed to 5.72% — a level last seen in 1998 — while the GBP fell as much as 1.3% to USD 1.3376, its sharpest one-day drop since April.

Meanwhile, US 30-year yields approached 5%, a level rarely surpassed since 2006, Barron’s reports. Over in Europe, 30-year German yields settled at 3.4%, while Dutch yields were at 3.57% — their highest levels since 2011 — and French 30-year debt rose to 4.49%, the most elevated since 2009. Japanese 30-year yields eased to 3.2% after hitting its highest level since at least 2006 last week.

Political volatility is part of the reason behind the turmoil — a surge in spending in Germany as well as political upheaval in France, the UK, and Japan are raising doubts about fiscal health and the governments’ ability to address their debt.

The UK is in a “dangerous” situation, Allianz CIO Ludovic Subran said, while Eurizon SLJ’s Stephen Jen warned of a potential situation reminiscent of the 2022 gilt crisis under former PM Liz Truss. Though today’s moves are slower and more orderly, the 30-year yield has risen more than 100 bps in the past year, outpacing US Treasuries and Bonds.

Weak demand from traditional buyers has compounded the sell-off. Defined-benefit pension funds have scaled back purchases, and the Debt Management Office has already slashed issuance of long gilts to a record low. The Bank of Japan is also cutting back, while the US Federal Reserve currently holds USD 3.6 tn in longer-term Treasuries, down from USD 4.9 tn in 2022.

Meanwhile, in France, the French government’s plan to tackle debt through massive spending cuts has triggered plans for a no-confidence vote on 8 September, which could potentially lead to French Prime Minister Francois Bayrou’s forced exit and putting the country in a dire position.

“Investors fear that more political paralysis will make fiscal tightening harder, which is worrying given France’s current deficit levels,” wrote Jim Reid, Deutsche Bank’s global head of economics and thematic research.

MARKETS THIS MORNING-

Asian markets are tracking global equity losses, with Japan’s Nikkei down 0.35% amid rising concerns over rising bond yields. Meanwhile, South Korea’s Kospi was flat, and Hong Kong’s Hang Seng is up marginally in early trade.

Over on Wall Street, futures point to a slightly better open after the US Department of Justice’s ruling offered Alphabet respite in its monopoly case.

THE CLOSING BELL: TADAWUL-

The TASI closed flat yesterday on turnover of SAR 4.3 bn. The index is down 11.4% YTD.

In the green: SPIMACO (+3.5%), Tamkeen (+2.0%) and Alkathiri (+1.9%).

In the red: Naseej (-6.3%), Build Station (-4.9%) and UCA (-4.3%).

THE CLOSING BELL: NOMU-

The NomuC fell 1.1% yesterday on turnover of SAR 33.5 mn. The index is down 18.5% YTD.

In the green: Asas Makeen (+10.0%), Molan (+9.4%) and Riyadh Steel (+5.8%).

In the red: Albatal Factory (-16.7%), Amwaj International (-12.7%) and Future Vision (-11.4%).