UK Gilt Yields Hit 2008 Highs

The yield on 10-year UK government bonds rose toward 5.3%, recovering from lows not seen in more than two months, as investors assessed strong UK economic data. Oil prices also stabilized, with Brent crude regaining some ground following sharp declines in recent sessions. Data from the ONS showed that the UK economy expanded by 0.7% in the third quarter, accelerating from 0.5% growth in the previous quarter and matching market expectations. On an annual basis, growth accelerated to 1.9% from 1.4%, also in line with forecasts, while monthly GDP rose by 0.2% in September, exceeding expectations. The resilient data strengthened expectations of further Bank of England tightening, with markets pricing in another rate hike before year-end and a further increase by March. In the US, stronger-than-expected inflation and hawkish Fed commentary reinforced expectations of a December rate hike, while raising the possibility of a more aggressive 50-basis-point increase.

The yield on 10-year UK government bonds stabilized around 5.2% following the previous session’s selloff, as investors assessed a quiet economic calendar and stronger-than-expected US inflation data, which reinforced expectations of further Fed tightening. Brent crude also paused its recent decline amid renewed shipping tensions in the Strait of Hormuz. Meanwhile, expectations of further BoE tightening have increased, with markets leaning towards another rate hike in December. Deputy Governor Clare Lombardelli warned that consecutive increases remain possible, highlighting persistent wage pressures and the risk of second-round inflationary effects. Investors are now increasingly pricing in another hike before year-end and a further increase by March, potentially putting renewed pressure on gilts. Investors are now turning their attention to UK third-quarter GDP report due Thursday.

The yield on 10-year UK government bonds reversed its earlier decline, tracking US Treasury yields higher to reach 5.18%, as stronger-than-expected US inflation data and hawkish remarks from Federal Reserve Governor Christopher Waller fueled concerns over further monetary tightening. Waller signalled the possibility of additional interest rate increases, while October's stronger-than-expected US inflation reinforced expectations of further Fed tightening in December, bringing a potential 50-basis-point rate hike into focus. Meanwhile, Bank of England Deputy Governor Clare Lombardelli also signaled the possibility of further monetary tightening, warning that Britain's “low-hire, low-fire” labour market could make it more difficult to ease wage pressures. She noted that another interest rate increase in the near term was likely unless clearer evidence emerged of weakening inflationary pressures. Investors are now turning their attention to UK third-quarter GDP report due Thursday.