UK 10-year bond prices plummet to two-month low amid decline in US Treasuries

UK 10-year government bond prices reached a two-month low on Thursday, following a significant selloff prompted by higher-than-expected inflation and a decline in US bond prices driven by concerns about rising oil prices.

At 07:04 GMT, 10-year gilt yields surged to 4.726 per cent, marking an increase of over 6 basis points (bps) for the day and the highest yield recorded since August 22. This comes after a 14.9 bps spike in yields on Wednesday, representing the most substantial single-day drop in 10-year gilt prices since August 11. The bearish sentiment, initially established by US Treasuries, was exacerbated by data revealing higher-than-anticipated inflation in the UK for September.

Meanwhile, two-year gilt yields reached 5.072 per cent, their highest level since September 18, before retreating to 5.05 per cent, still reflecting an increase of nearly 5 bps for the day.

Market analysts currently assess a one in five probability of the Bank of England raising interest rates at its next meeting on November 2. However, they see a greater than 50 per cent likelihood of a quarter-point rate hike to 5.5 per cent by the end of the year.

The yields for both long-term and short-term US Treasury bonds have reached 16-year highs, with the 10-year yield nearly hitting 5 per cent on Thursday. Market participants are speculating that Federal Reserve Chair Jerome Powell will adopt a hawkish stance later in the day, given the strength of the US economy.

(With Reuters Inputs)