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UK 30-year gilt yields reached their highest point since 1998 on Wednesday as the fallout from US president Donald Trump's trade war continues.
The yield on a 30-year gilt, or UK government bond, hit 5.518% on Wednesday morning, up 16 basis points and surpassing a previous 27-year high of 5.472% set in January.
The sell-off in UK gilts comes amid rising bets that the Bank of England will need to cut interest rates faster than previously expected this year. Money markets now predict a rate cut of at least a quarter point at the Bank’s next meeting in May, while some were even pricing in a half-point drop.
It comes as US bond markets have experienced a heavy sell-off this week, leaving the sector at risk of a “Liz Truss moment”, while the fallout could threaten the dollar’s safe-haven supremacy too.
The yield, which moves inversely to bond prices, on the US 10-Year treasury note has surged from Friday’s low when it fell below 3.90%, to 4.42% overnight.
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Dario Perkins, an analyst at TS Lombard, said: “For the first time in my career, I’m hearing widespread scepticism about the competency of US policymakers. It is about recklessness.
"That is why many global investors are also making the comparison with the UK’s 'Liz Truss moment’. Especially now that the US bond market looks jittery.”
Although the surge in yields “looks nothing like the UK response” to Truss’s mini-budget, Perkins warned: “If yields keep rising, that would create a dilemma for the Fed, reminiscent of the dilemma the Bank of England faced in September 2022.
“When yields rise too quickly, they become a threat to financial stability. But the central bank can’t totally abandon its worries about inflation, especially after four years of missing its target. It doesn’t want to cut rates, but it can’t to sit on its hands while markets break.”
So far, selling in the bond market has not been as dramatic as during the Liz Truss era but analysts have pointed to a number of reasons why investors may be selling government bonds at the moment.
The first is that hedge funds and leveraged investors are looking to raise cash to cover margin calls, and might encash liquid assets like bonds to fill holes.
Secondly, investors may be selling mixed asset funds which hold both equities and bonds, with the latter simply being collateral damage in the flight from anything that smells of risk.
Meanwhile, Calvin Yeoh, portfolio manager at hedge fund Blue Edge Advisors, told Bloomberg: “I haven’t seen moves or volatility of this size since the chaos of the pandemic. This is a fire sale of treasuries."