TLDR
- UK 10-year gilt yields hit 5.43%, the highest since 2007, driven by rising oil prices and inflation fears
- Brent crude topped $109 a barrel after Houthi rebels seized a key Red Sea port
- Morgan Stanley now expects the Federal Reserve to raise rates in both September and December
- The FTSE 100 closed down 0.4% at 10,658, though well off its session lows
- The Bank of England is expected to hold rates Thursday, but markets price in four hikes by spring 2027
The cost of UK government borrowing rose to its highest level in nearly two decades on Tuesday, as rising oil prices pushed bond yields higher across global markets.
The UK’s bond market is collapsing.
Today, the yield on a 30Y Bond in the UK hit 5.95%, its highest level since March 1998.
Yields in the UK are now 15 TIMES above 2020 levels, with the highest borrowing costs among G7 countries.
What is happening? Let us explain.
(a thread) pic.twitter.com/VDINc2LYMn
— The Kobeissi Letter (@KobeissiLetter) September 15, 2026
The yield on 10-year UK gilts climbed to 5.43%, a 19-year high. Short-term borrowing costs also jumped, with two-year UK bond yields topping 4.9% for the first time in three years.
What Is Driving the Sell-Off
Rising oil prices are at the centre of the turmoil. Brent crude topped $109 a barrel this week after Houthi rebels in Yemen seized a key Red Sea port, disrupting shipping routes and pushing energy costs higher.
Oil prices have risen around 20% so far this month. That has stoked fears that inflation, which had been slowing, could accelerate again.
Anthony Brinkman of Principal Asset Management said the gilt market movements were “intent on showing central banks they are out of time.”
Higher energy costs are raising concerns that businesses will have little choice but to raise prices across a wide range of goods. That could make the job of central banks harder.
Rate Decision Pressure Builds
The US Federal Reserve meets Wednesday and is expected to raise interest rates. The yield on 10-year US Treasuries has already crossed 5% for the first time since 2007.
Morgan Stanley changed its outlook and now expects the Fed to raise rates in both September and December. The bank had previously expected no hikes this year.
The Bank of England meets Thursday and is widely expected to hold rates at 3.75%. However, traders are pricing in a rise to 4% as soon as November.
Analyst Kallum Pickering at Peel Hunt expects the Bank of England to hold for the rest of 2026 before cutting rates next year. That view is more cautious than money markets, which price in around four hikes by spring 2027.
UK jobs data released Tuesday showed the labour market is cooling. Payrolled employee numbers fell by 101,000 in July compared to a year earlier. Average earnings growth also slowed to 3.9% from 4.2%.
Barclays said wage growth remained “benign,” which could give the Bank of England some room to stay on hold.
The FTSE 100 closed down 0.4% at 10,658. Defence stocks bucked the trend, with BAE Systems and Babcock International both rising 3.4%. Shell added 2%.
London Stock Exchange Group was among the biggest fallers, dropping 3.2%. Software names Relx and Experian also declined.
UK inflation data is due Wednesday, alongside US retail sales figures and the Federal Reserve rate decision.
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