The UK’s borrowing costs have climbed to their highest level in almost two decades as fears rocket over rising oil prices that could keep interest rates elevated.
The yield on the benchmark 10-year government bonds, or gilts, rose seven basis points to 5.223 per cent today – its highest level since June 2008.
Bond yields rise when prices fall, indicating a sharp sell-off in government debt.
Longer-term borrowing costs also came under pressure, as the yield on the 30-year gilt increased by nine basis points to 5.88 per cent, reaching its highest level since March 1998.
The rise came amid a broader global sell-off in bonds.
Japan’s 10-year government bond yield reached three per cent for the first time since September 1996, while Germany’s 10-year borrowing cost rose two basis points to 3.34 per cent – its highest level in 15 years.
Investors are increasingly concerned that higher energy prices could slow the progress made in bringing inflation under control.
Brent crude, the international oil benchmark, rose more than one per cent to around $91.69 a barrel, as tensions in the Middle East continued to disrupt energy markets.
Investors are increasingly concerned that higher energy prices could slow the progress made in bringing inflation under control
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GETTYGermany provided a fresh indication of the pressure building across Europe, as preliminary figures showed consumer price inflation in the eurozone’s largest economy accelerated to 2.9 per cent in August from 2.8 per cent in July, largely reflecting a 10.5 per cent rise in energy prices.
The increase was smaller than economists had expected however, while core inflation, which excludes volatile energy and food prices, remained unchanged at 2.4 per cent.
Bond markets are also facing pressure from a growing supply of new debt.
Major technology companies are raising substantial amounts of money to finance investment in artificial intelligence, increasing competition for investors’ cash at a time when governments are already issuing large volumes of bonds.
The rise in longer-dated gilt yields could have significant implications for the UK government, increasing the cost of financing public spending and refinancing existing debt.
Meanwhile, oil markets remain focused on the Strait of Hormuz, a crucial route for global energy supplies that has been effectively closed by Iran since the United States and Israel began military action against Tehran on February 28.
Shipping activity through the waterway remains well below normal levels.
Five commodity vessels crossed the strait on Monday, according to shipping data from Kpler, compared with a recent 10-day average of 14 – none of which were liquid tankers.
Shipping activity through the Strait of Hormuz remains well below normal levels
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REUTERSThe United Kingdom Maritime Trade Operations agency said this morning that a tanker had reported being struck by three projectiles while leaving the strait, but that no casualties or environmental damage were reported.
Analysts at Australia and New Zealand Banking Group warned that the disruption was putting increasing strain on global oil supplies.
Although satellite-tracking companies estimate that around 6 million barrels of oil a day are still moving through Hormuz, the figure remains significantly below pre-conflict levels.
ANZ analysts said the market’s remaining supply buffers were also being depleted, with US oil inventories approaching minimum levels, and China likely to face greater pressure to increase imports as seasonal demand strengthens.