US borrowing costs hit 24-year high as global bond sell-off intensifies

Traders on the floor of the New York Stock Exchange. Photograph: Sarah Yenesel/EPAView image in fullscreenTraders on the floor of the New York Stock Exchange. Photograph: Sarah Yenesel/EPAGovernment borrowingUS borrowing costs hit 24-year high as global bond sell-off intensifiesFears that US deficit is unsustainable also drive UK 30-year bond yields briefly above 6% for first time since 1998

The global bond sell-off intensified on Thursday, driving 10-year US government borrowing costs to their highest level in 24 years in a frantic day’s trading.

The threat of a renewed round of inflation from the persistently high cost of oil has spooked investors on both sides of the Atlantic, with central banks expected to raise interest rates in the coming months to prevent price increases from becoming embedded.

The sell-off drove the yield, or interest rate, on 10-year US Treasuries to 5.34% – the highest level since 2002.

In the UK, where surging borrowing costs are increasing the pressure on the chancellor, John Healey, before his first budget later this month, the yield on 30-year bonds hit 6% for the first time since 1998, before easing slightly later in the day. Yields on five- and 10-year UK bonds were also up.

Stock market investors sold heavily too, knocking almost 1.7% off the FTSE 100 in London – its worst daily fall since May. Bourses in other parts of Europe were also hit, with Germany’s DAX falling 1% and France’s CAC 40 losing 1.6%.

“There is carnage in the bond market, which is hitting stocks hard,” said Neil Wilson, the investor strategist at Saxo UK. “It looks like the relentless rout in the bond market is sending investors running for cover.”

The bond sell-off around the world is being driven by fears of high inflation, as the Middle East conflict continues to restrict oil supplies from the region.

US bonds weakened despite inflation data on Wednesday coming in lower than forecast, which was expected to calm investors’ nerves about the prospect of further increases in the cost of borrowing by the US Federal Reserve.

Traders remain anxious that the Fed will continue to raise interest rates to fight inflation, mainly in response to the strength of the US economy and the prospect of workers bidding up their wages.

Mohit Kumar, an economist at Jefferies, said there was growing concern at the amount of debt being issued to fund government deficits, as well as inflation concerns.

“Inflation, deficit and issuance concerns continue to weigh on the bond market,” he said.