Gilt yields on long-dated UK gilts have risen to their highest level since the 1990s amid the turmoil in global markets and a sell-off in US Treasuries.
The yield on 30-year gilts, meanwhile, rose as high as 5.675% at around 1:20pm this afternoon – the highest level since 1998 – before falling back slightly to 5.643% at 2pm.
This was up from a close of 5.353% yesterday and a high of around 5.45% in the middle of January's gilt sell-off.
Yield rises on shorter-dated ten year paper were more muted however – with yields rising to 4.826% by 2pm today. This was up from a close of 4.619% yesterday and a one week low on Friday of 4.374% - but compares to the highs of 4.909% set in mid-January, levels that had not previously been seen since the beginning of 2008.
The Financial Times said the rise in global borrowing costs had been driven by a sell-off in US Treasuries as President Trump's tariffs took effect, deepening investor concern about the "safe haven" status of US sovereign debt.
A sovereign crisis?
Aberdeen said US bond yields have started to move sharply higher despite equity market weakness, and the curve has steepened significantly.
Chief economist Paul Diggle said: "Falling equities and dollar, and rising yields, represent a pernicious combination. In any other country, this would be called a sovereign crisis."
Diggle explained this was particularly striking because the US treasury market is meant to be the risk-free asset that performs well when equity markets are falling. Instead, he said, bond yields appear to be rising for a number of reasons.
First, he said uncertainty around US policy means investors require higher term premia (the compensation that investors require for lending for longer periods, which takes the form of higher yields).
Second, he said the US may be becoming a structurally less attractive place to invest over the long run – with tariffs reducing long-run potential growth, meaning portfolios could well hold fewer US assets in the future.
Third, Diggle noted that, because tariffs represent a stagflationary shock, they create a difficult trade-off for monetary policy – adding there was a risk that either the Fed doesn't ease as aggressively as priced by markets, or that it allows an inflation overshoot as it focuses on growth.
Finally he said Asian investors in particular seem to be selling US assets. Diggle said that, in extremis, this could evolve into the dumping of treasuries by China that has long been speculated about.
Diggle added: "It is possible that bond market weakness will prove more consequential in shifting the administration's approach. So far, the pain tolerance for equity weakness has been high. But the equity market vigilantes were arguably easier to ignore when bond yields were falling."
