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Global bond sell-off resumes as oil above $107 stokes inflation fears
Crude rose more than 6% to above $107 a barrel, helping push the UK 10-year government bond yield above 5.37%, its highest level since 2007.
A renewed global sell-off in government bonds is picking up speed, driven by surging oil prices and renewed inflation concerns linked to intensifying tensions in the Middle East. The price of crude jumped more than 6% to above $107 a barrel as investors worried that advances by Houthi rebels along the Red Sea coast in Yemen could disrupt Saudi crude exports, compounding concerns about government borrowing across major economies.
The outlook for higher inflation is raising expectations that central banks will keep interest rates higher for longer, which in turn adds pressure on economic growth. As oil prices climbed amid the resumption of conflict involving Iran, markets began factoring in the likelihood that inflation would stay above targets for an extended period.
In the eurozone, ECB President Christine Lagarde said inflation would remain above the central bank’s target longer than expected. In London on Thursday, the yield on 10-year UK government bonds surged above 5.37%, the highest borrowing cost since 2007, creating fresh pressure for the UK government as it prepares for new fiscal decisions.
With less than seven weeks until Chancellor John Healey’s first budget on 28 October, higher yields raise the cost of future investment projects and reduce the Treasury’s fiscal headroom. The report also noted that rising oil and gas prices could intensify pressure for government support to help consumers manage higher winter energy bills.
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