UK bonds face renewed selling pressure
UK government bonds are extending their recent selloff as global concerns about fiscal spending and inflation continue to weigh on fixed income markets. The 30-year gilt yield has surged to levels not seen since 1998, highlighting the scale of the current bond market rout.
This morning’s weakness appears to be part of a broader global pattern rather than UK-specific concerns. However, the lack of immediate catalysts to stem the selloff means investors remain jittery about the path ahead for British government debt.
The selloff has been particularly pronounced in longer-dated bonds, with the 30-year gilt yield rising four basis points to surpass yesterday’s high above 5.72%. This suggests investors are increasingly concerned about the long-term fiscal outlook and potential inflationary pressures.
Pound slides to four-week low against dollar
Sterling has extended its decline against the US dollar, falling below $1.34 to reach a four-week low. The currency is among the worst performers in the G-10 space this morning, even as it has pared some of its earlier losses.
The pound’s weakness reflects both dollar strength and specific concerns about the UK’s fiscal position. With Chancellor Rachel Reeves expected to announce the budget date as 26 November, markets face an extended period of uncertainty about potential tax rises or spending cuts.
The decline against the euro has been equally pronounced, with sterling dropping back above 87 pence per euro. This broad-based weakness suggests investors are reducing their exposure to UK assets across the board.
FTSE companies deliver mixed earnings results
Ashtead Group provided a relatively steady performance with first quarter (Q1) revenue growth of 2% to $2.8 billion. However, operating profit declined 7% to $642 million due to higher costs and lower used equipment sales. The company’s strong free cash flow generation of $514 million demonstrates its ability to generate cash even in challenging conditions.
Ashtead Group reported Q1 revenue growth of 2% to $2.8 billion driven by rental revenue gains, though operating profit declined 7% to $642 million due to higher costs and lower used equipment sales. The equipment rental company generated strong free cash flow of $514 million, completed $330 million in share buybacks, and reaffirmed full-year revenue guidance while raising free cash flow expectations.
Hilton Food Group faced headwinds in its seafood division, with UK operations impacted by softer white fish demand driven by raw material inflation. The food processor managed revenue growth of 7.6% to £2.09 billion for the 26 weeks ended June, though profit margins came under pressure.
Watches of Switzerland Group bucked the trend with strong trading performance over 18 weeks to August. The luxury retailer reported consistent growth in both UK and US markets, with its flagship Rolex Boutique on Old Bond Street exceeding expectations.
US markets prepare for crucial data releases
American markets are bracing for a series of important economic releases that could influence Federal Reserve policy expectations. The JOLTs job openings report is expected to show a decline to 7.3 million from July’s 7.4 million, setting the stage for Friday’s crucial nonfarm payrolls data.
These labour market indicators will be critical for traders assessing whether the Fed might implement a more aggressive rate cutting cycle. Current market pricing suggests an 89% probability of a 25 basis point cut this month, but stronger-than-expected jobs data could alter these expectations.
Meanwhile, Treasury yields continue their upward march, with the 10-year reaching 4.269% and the 30-year approaching the psychologically important 5% level. This bond market pressure is creating headwinds for both equities and currencies globally.
What to watch today
Several key developments could drive market sentiment throughout the trading session. The UK budget date announcement expected from Chancellor Reeves will provide clarity on timing, though it may also fuel further speculation about the contents of the fiscal package.
Trading platforms will be busy tracking movements in bond yields, with the 30-year gilt yield’s proximity to multi-decade highs likely to attract significant attention. Any break above current levels could trigger further selling pressure.