Oil prices rose after Saudi Arabia thwarted an attempted Houthi attack on a major export route.
Brent crude increased by 4pc on Thursday to $107.90 a barrel after the country’s military forces intercepted six ballistic missiles fired by Yemen’s Iran-backed militia.
The attack had targeted the Taif and Yanbu area of the Red Sea, the primary alternative export route for crude, with Saudi Arabia’s counterstrike raising hopes the country can keep oil flowing.
Saudi Arabia has been working to restore output along its East-West pipeline, which was shut down on September 11 following drone attacks that Riyadh attributed to Iraqi militias.
It came as US long-term borrowing costs hit their highest level since 2004 as a global rout in bond markets deepened.
Yields on 30-year US Treasury bonds climbed to 5.43pc on Thursday, while the yield on 30-year UK gilts rose to 5.87pc, near its highest level since 1998.
Japan’s 10-year bond yield also surged to 3.08pc, its highest level since 1996.
The latest rises show the worldwide bond sell-off is gathering pace as stronger-than-expected US growth and higher oil prices fuel inflation fears.
Meanwhile, US private sector activity jumped unexpectedly to a five-year high in September.
Traders are betting on three US rate rises by April next year in an effort to bring down inflation, with money markets suggesting a 70pc chance of the Fed following this month’s rate rise with a second in October.
Signing off...
Thank you for following our coverage of the global bond sell-off, driven by investor’s fears over rising inflation.
Looking at the markets, the 10-year Treasury yield is sat at 5.14pc, while the benchmark Brent crude oil fell back slightly to $105.
This follows an escalation in tensions, as Saudi Arabia thwarted an attempted Houthi attack on a major export route.
You can stay up to date with the latest here.
FTSE falls at close after “showing resilience”
The FTSE 100 index closed 0.24pc lower today after “showing resilience”, having led for most of the day.
Rising bond yields and oil prices above $100 per barrel weighed on equities, as defence and energy sectors helped limit broader market losses.
Dan Coatsworth, head of markets at AJ Bell, said: “The FTSE 100 showed resilience on Thursday as it benefited from strength in energy, consumer non-cyclical, healthcare, real estate and utility stocks.”
“These more than offset weakness in industrials, miners, consumer cyclicals and financials.”
Oracle shares plummet after issuing “force majeure”
Oracle shares have fallen 5pc after issuing a “force majeure” notice to the developer of its New Mexico AI data centre.
The notice lets Oracle delay payments to developer Blue Owl Capital if the facility fails to open by 2028.
Known as Project Jupiter, the massive build-out faces local opposition, environmental hurdles, and investor anxiety over $18bn in project debt.
However, Oracle insists the project remains on schedule, and both companies say long-term financial commitments are unchanged.
Senior Technology reporter Matthew Field has more on this story.
Oil surges on heightened Middle Eastern tensions
Brent crude has risen 4pc to $107.90 a barrel after Saudi Arabia intercepted six ballistic missiles fired by Yemen’s Iran-backed Houthis.
It remains unclear whether the attack caused damage or casualties in Taif or Yanbu, the primary alternative export route for Saudi crude.
The attack followed a widespread emergency alert covering several areas, including Jeddah and the holy city of Mecca.
The strikes on Yanbu came just as prospects were improving for resuming crude exports from its terminal.
According to industry sources, Saudi Arabia has been working to restore pumping volumes along its East-West pipeline, which was shut down on September 11 following drone attacks that Riyadh attributed to Iraqi militias.
Wall Street slips as bond sell-off weighs on stocks
US stock markets continued to face downward pressure on Thursday, driven by surging bond yields and escalating tensions in the Middle East.
The tech-heavy Nasdaq led the selloff, sliding 0.8pc, while the S&P 500 fell 0.4pc and the Dow Jones Industrial Average dropped 0.2pc.
Stocks fell as 10-year Treasury yields jumped to 5.11pc, a 19-year high, raising borrowing costs across the economy.
Heightened tensions with Iran lifted oil prices and concerns over a potential ban on US diesel exports further dampened market sentiment.
Bond market ‘blowout’ as inflation fears grip traders
Market strategists are attributing rising bond yields to the continued resilience of the US economy.
“Bond yields are blowing out again partly because the US economy is booming,” said Neil Wilson of Saxo UK.
Strong US business activity data on Wednesday “played into the narrative of resilient growth, which in turn would enable the Fed to keep hiking rates to deal with inflation”, said Jim Reid of Deutsche Bank.
A rebound in oil prices has rekindled inflation fears, with Brent crude hitting around $106 a barrel on Thursday.
Most economists had expected growth to slow as inflation eroded wages and cut into household spending.
Bessent’s buyback programme continues
The US Treasury is set to buy back up to $6bn in long-term US bonds today, the second in a series of scaled-up buyback operations first announced in August.
While bond buybacks are designed to help suppress rising borrowing costs, yields have continued to climb regardless.
The interest rate on benchmark 10-year Treasuries climbed to 4.85pc after last time, while yields for 20- and 30-year maturities also rose sharply.
Ryan Sweet, chief economist at Oxford Economics, noted that Washington will struggle to lower borrowing costs through buybacks alone: “There’s the old adage that you can’t push the bond market around.”
“I think that’s true because the bond market is just huge. [$6bn] is a big number, but not relative to the size of the overall market.”
Pound sinks to lowest level against the dollar in three months
Sterling has fallen to its lowest level against the dollar since late June, as expectations rise that the Federal Reserve will have to raise interest rates more aggressively.
The pound is trading at $1.32, down from $1.37 last month. The fall comes after a closely watched survey yesterday suggested America’s private sector is growing at the fastest pace in five years.
This, coupled with high oil prices, has reignited fears that the US central bank will have to go further and faster in raising interest rates, strengthening the dollar.
This stands in stark contrast to Britain, where economists worry that rate rises would hurt an already fragile job market and an economy losing momentum.
US stocks open lower
Wall Street stocks have started the day on a downbeat note, with high oil prices weighing on sentiment.
The S&P 500 is trading 0.4pc down, the same as the Dow Jones. The tech-heavy Nasdaq is currently 0.6pc lower.
It makes the FTSE 100 look like a positive outlier, with London-listed stocks up 0.2pc.
US jobless claims fall to two-month low
The number of people claiming unemployment benefits in the US fell to the lowest level since July in a sign that the American jobs market remains robust.
Initial claims fell by 1,000 to 197,000 in the week to September 19, which was among the lowest since 1969.
The signal of strength in the American economy underlines the case for the US Federal Reserve to raise interest rates, as a strong jobs market can fuel inflation.
US borrowing costs rise further
The yield on 10-year Treasuries has again risen to the highest since 2007, after hitting 5.12pc.
The rise underlines the growing pressure on bond markets, with the 10-year yield considered the world’s most important interest rate.
It comes as oil is trading at $105 a barrel, as Donald Trump is struggling to exit the war he started in Iran.
Oil prices had started the year dipping below $60.
Germany’s borrowing costs highest since 2009
The yield on Germany’s benchmark 10-year Bund has jumped to the highest level in 17 years, as Europe’s largest economy looks to loosen the purse strings.
The interest rate investors charge Berlin to borrow for 10 years has risen to 3.57pc, up by 0.18 percentage points.
This is the highest since June 2009, in the wake of the Great Recession and months before the euro crisis.
The rise in Germany’s borrowing costs came as its finance agency said it expects borrowing to hit a record £452bn this year and rise further in 2027.
Berlin’s borrowing spree to fund greater defence spending makes it one of many rich countries issuing large amounts of debt, while demand from traditional buyers like pension funds is in decline.
Meanwhile, fears of a fresh wave of inflation are pushing up borrowing costs and squeezing governments.
Germany is seen as one of the safest borrowers in the world thanks to its top-tier AAA credit rating.
Brussels warns Trump diesel export ban will backfire
The European Union has warned Donald Trump that a US export ban on diesel would hurt both Brussels and Washington DC.
Olof Gill, the European Commission spokesman, told a press conference in Brussels: “We believe this is a bad idea. We believe it potentially can have a negative impact on both sides. We’re making that point to our US counterparts at the highest level.”
It comes after it emerged that the US administration was drawing up plans to stop diesel from being sent abroad.
The White House subsequently dismissed it as “fake news”, but European diesel prices jumped by as much as 7pc.
The measures would also push up fuel prices and potentially spark shortages in Britain, if Mr Trump were to go ahead with them.
This would pose another inflation headache for the Bank of England.
Our industry editor Matt Oliver has the latest on how Brussels has been lobbying Washington.
Wall Street futures fall in rocky day for markets
Wall Street futures have fallen, as investors feel increasingly uneasy about the lack of progress in the Middle East.
Dow futures fell 0.33pc, the S&P 500 0.57pc and the Nasdaq 1pc. It comes as Donald Trump is poised to meet Xi Jinping at a closely watched summit, adding to traders’ nervousness.
Meanwhile, the FTSE 100 has swung into positive territory, currently trading 0.1pc up. The stock index is dominated by banks and energy companies, which tend to do well in an inflationary environment.
What the readers make of today’s news
Surging inflation triggers bond sell-off
The sell-off in US bond markets is being driven by concerns that the Federal Reserve will need to raise interest rates to combat rising inflation, analysts said.
The downturn in bonds was triggered by the latest US purchasing managers index on Wednesday, which showed private sector activity rose to a five-year high.
The data also suggested that price pressures intensified in September. Input prices, a key metric when measuring wholesale inflation, rose to its highest since October 2022 as a result of higher fuel and transport costs.
As a result, markets are now pricing in three rate rises by the US Federal Reserve by April next year.
Mike Bell, an analyst at RBC Bluebay, said: “The US bond sell off was driven primarily by the higher services sector input prices component of the S&P PMI business survey which points to upward risks to US core inflation.
“Markets therefore adjusted higher their expectations for the number of Fed hikes that might be required.”
US long-term borrowing costs hit 22-year high
US long-term borrowing costs hit their highest level since 2004 as a global rout in bond markets deepened.
Yields on 30-year US Treasury bonds – a benchmark for what governments pays to borrow money long term – hit their highest level in 22 years at 5.43pc after a jump in oil prices.
Rate rises ‘increasingly likely’ if oil prices stay high
A deputy governor of the Bank of England has warned it is “increasingly likely” that interest rates will rise if oil prices keep up inflationary pressure on the economy.
Clare Lombardelli said businesses were more likely to begin passing on higher costs to consumers if energy prices remain elevated.
Her comments at the Sixth Biennial Conference came as the price of oil jumped to $105 a barrel, while wholesale gas prices were up 3pc.
Prices rose as the UN meeting in New York showed little sign of a breakthrough between the US and Iran over the Middle East conflict.
Ms Lombardelli said: “If elevated energy prices persist for long enough, direct cost pressures are increasingly likely to eventually turn into indirect and second-round inflationary pressures.
“The relevant question is therefore not whether we can already observe indirect and second-round effects in the data, it is whether the conditions for those indirect and second-round effects are becoming more entrenched.
“The longer higher energy prices persist, the greater the risk that indirect effects build and that inflation expectations, wage bargaining and price-setting behaviour begin to adjust in response.
“On that basis, policy is increasingly likely to need to tighten if elevated energy prices persist, absent clear evidence of disinflation or weaker activity.”
China stocks fall as Xi meets Trump
It is not just bonds having a bad day. Stocks are not doing well either, particularly in China.
Stocks in the world’s second largest economy logged their worst day in a month as investors remained sceptical that a meeting between Donald Trump and Xi Jinping in Washington would produce a breakthrough in relations.
At the close, China’s blue-chip CSI300 Index fell 1.7pc, while the Shanghai Composite Index lost 1.2pc, both marking their biggest one-day drop in a month.
Hong Kong’s benchmark Hang Seng Index was down 0.3pc.
President Trump welcomed Xi to Washington on Wednesday for a three-day visit that will test relations between the two superpowers.
Mr Xi’s first trip to the US in nearly three years was not expected to yield major breakthroughs, but Treasury Secretary Scott Bessent said the two countries agreed to extend a trade truce by two months.
Switzerland keeps interest rates on hold
The Swiss National Bank kept its benchmark interest rate on hold at 0pc on Thursday, resisting pressure to counter rising inflation caused by war in the Middle East.
The bank said: “Medium-term inflationary pressure has increased only slightly.
“Monetary policy is appropriate to keep inflation within the range consistent with price stability and supports economic development.”
The Swiss National Bank said inflation would likely climb somewhat higher in the fourth quarter, before declining again in the course of 2027 as a recent spike in energy price pressures eased.
UK borrowing costs edge higher as oil rises
The cost of government borrowing has risen as bond markets remain under pressure from the threat of inflation.
The yield on 10-year UK gilts has climbed from 5.35pc to 5.37pc, close to its highest level in 19 years, after the price of oil jumped again.
Brent crude, the international benchmark, has spiked by 2.9pc to $106 a barrel.
Norway raises interest rates over inflation fears
Norway’s central bank has raised its benchmark interest rate and warned more increases may be needed to curb inflation.
Norges Bank raised its policy rate for the first time in three years from 4.25pc to 4.5pc.
Governor Ida Wolden Bache said: “Inflation has been above target for several years. By raising the policy rate, we are helping to reduce inflation.
“It will likely be necessary to keep the policy rate elevated for a time, and the Committee is prepared to raise the policy rate further if needed to bring inflation down to the 2pc target within a reasonable time horizon.
“At its monetary policy meeting in June, the Committee judged that it would likely be necessary to raise the policy rate at one of the forthcoming meetings.
“Over the summer, underlying inflation moderated and was lower than expected. But the inflation outlook somewhat further ahead does not appear to have changed materially.”
Bond rout driven by ‘fast money accounts’
An investment bank said the sharp surge in government borrowing costs was driven by traders being forced to quickly close their bets.
Jefferies said stronger than expected US private sector output and a weak US bond auction were “contributing factors” to the sharp the rise in bond yields.
Mohit Kumar, chief Europe economist said these factors sparked a “round of washouts” in “fast money accounts”.
He said: “The main driver was likely stop outs and position unwinds. There appears to be a lot of pain on the street in fixed income.”
High-debt countries ‘extremely vulnerable’
The surge in government borrowing costs has left high-debt countries like France “extremely vulnerable”, an economist said.
France suffered a larger jump in its 10-year borrowing costs than both the US, Greece and Italy on Wednesday.
Robin Brooks, an economist at the Brookings Institution, said markets “are penalising high-debt countries”.
France’s debt to GDP ratio is around 115pc, with the US around 125pc, Greece around 144pc and Italy around 140pc.
Borrowing costs rise after weak US bond sale
The cost of government borrowing has been pushed higher after weak demand at an auction for US debt, forcing the Treasury to offer higher returns to attract investors.
An auction of five-year Treasury notes worth $70bn on Wednesday offered the highest yield since 2006 at 5.033pc after demand fell short of expectations.
UK stocks hit by bond rout
The London stock market suffered a slow start after the downturn in bond markets.
The FTSE 100 fell as much as 0.4pc in early trading to 10,666.91 while the mid-cap FTSE 250 declined 0.5pc to 24,241.01.
UK borrowing costs flat
The cost of UK government borrowing was little changed on Thursday, even as expectations grow that central banks will raise interest rates.
The 10-year UK gilts yield – a benchmark for what the Treasury pays to borrow money – was trading around 5.35pc after bond markets opened.
Bond sell-off ‘shouldn’t be a surprise’
The surge in borrowing costs should not have been a surprise, a respected economist has said.
Mohamed El-Erian, chief economic adviser at Allianz and former boss of bond giant Pimco, said there were a myriad of reasons for why borrowing costs had risen.
However, traders were still wrongfooted as they had become accustomed to “more than a decade of artificially low, repressed yields following the 2008 Global Financial Crisis”.
French borrowing costs hit 18-year high
The cost of government borrowing in France rose to the highest level since 2008 as debt markets in Europe show “signs of stress”.
The yield on 10-year French bonds climbed to 4.66pc on Thursday, hitting a fresh 18-year high.
The difference between French yields and those of Germany, considered the benchmark for the eurozone, closed on Wednesday at the widest level since the bloc’s debt crisis in 2012.
Jim Reid of Deutsche Bank said this showed “growing signs of stress in Europe”.
Good morning
Thanks for joining me. A global rout in bond markets deepened overnight as traders expect the US to keep raising interest rates.
Japan’s 10-year bond yield surged to 3.08pc on Thursday, its highest level since 1996, as markets responded to stronger than expected US economic data and higher oil prices.
It followed sharp rises in the US on Wednesday, when the yield on 10-year Treasuries – a benchmark of global borrowing costs – surged as high as 5.12pc, up from 4.96pc. It was the biggest jump since the “liberation day” tariff turmoil in April last year.
Bonds were sent into turmoil as traders bet that the Federal Reserve will raise interest rates three times by April next year in an effort to bring down inflation. Money markets suggest there is a 70pc chance of the Fed following this month’s first rate rise in three years with a second in October.
This followed closely watched industry data on Wednesday, known as PMIs, showed US private sector activity jumped unexpectedly to a five-year high in September.
Meanwhile, oil prices spiked 3.9pc on Wednesday to move back above $100 a barrel, risking an inflationary spiral in the world economy.
Jim Reid, an analyst at Deutsche Bank, said: “The main driver was a strong batch of PMIs, along with a rebound in oil prices, which both led to mounting speculation about faster rate hikes.” Here is what you need to know.
5 things to start your day
1) US borrowing costs hit highest since 2007 on fears economy overheating | Yield on 10-year Treasuries soars amid inflation concerns as oil prices rise
2) Diesel prices surge as Trump mulls 90-day US export ban | Pump prices could exceed £3 per litre in Britain if Washington imposes ‘catastrophic’ block on exports
3) England’s first new reservoir in 30 years delayed despite drought warnings | Havant Thicket, in Hampshire, will now be completed in 2034, five years after initially planned
4) Timpson customers ask for extra belt holes after weight-loss jabs | Boss of key cutting chain credits Ozempic and Mounjaro after surge in requests
5) Chinese carmaker’s new EV battery will charge in under five minutes | Geely says its latest system is fastest in industry as brands approach ‘physical limit’
What happened overnight
Debt markets were in turmoil after Japanese bond yields hit 30-year highs.
As Tokyo markets reopened after a three-day holiday, the benchmark 10-year Japanese government bond yield jumped to its highest level since 1996.
This came after a steep sell-off in the US market overnight. Oil prices remained around $103 a barrel and the dollar held gains after Tehran’s leader vowed to never surrender following a warning by Donald Trump that he could “annihilate” Iran.
Japan’s benchmark stock market, the Nikkei 225 rose 1pc to 65,645.10, as some chipmakers got a boost from the recent interest in AI. Australia’s S&P/ASX 200 fell 0.7pc to 8,702.00.
Hong Kong’s Hang Seng lost 0.3pc to 24,762.39, while the Shanghai Composite dipped 0.9pc to 4,545.09. Trading was closed in South Korea for the Chuseok autumn harvest holiday.