UK 30-year bond yields hit 27-year high
Newsflash: British 30-year government bond yields have hit their highest since 1998, intensifying the pressure on the UK Treasury.
The 30-year gilt yield has risen to 5.680% in early trading, over the previous 27-year high set in April.
Yields measure the interest rate which an investor receives for holding a bond, and rise when the price of a bond falls.
This rise in bond yields adds to Rachel Reeves’s headache as she tries to draw up this autumn’s budget. Higher borrowing costs could create a larger black hole to be filled through higher taxes or spending cuts.
As covered in the introduction, long-term government borrowing costs have been pushed higher in recent weeks by worries over fiscal sustainability, and rising inflation.
Jim Reid of Deutsche Bank told clients this morning:
Even in orderly markets, we’re seeing a slow-moving vicious circle: rising debt concerns push yields higher, worsening debt dynamics, which in turn push yields higher again.
Key events
Pound on track for worst session since ‘Liberation Day’
The selloff in sterling against the US dollar is gathering pace, as Wall Street traders return to their desks after the long weekend (for the Labor Day holiday).
The pound is now down by 1.6 cents, or 1.2%, against the dollar at $1.338.
That would be its biggest fall since 7 April, in the market mayhem after Donald Trump announced new tariffs against US trading partners.
Bonds are back in the spotlight today, leading the market worry, with EU, UK and US yields all notably higher, says Bob Savage, head of markets macro strategy at BNY.
Savage adds:
Driving the move were fiscal and political worries, overlaid with doubts over central banks’ ability to fix the current economic illness of stall-speed growth and sticky inflation.
Klarna announces IPO
Kalyeena Makortoff
The buy now, pay later company Klarna has announced the launch of its much-anticipated initial public offering (IPO), which could value the Swedish firm at more than $14bn.
The fintech firm confirmed on Tuesday that it would be offering more than 34 million shares, priced between $35-$37.
That could push its Klarna’s valuation to more than $14bn.
Reports last week suggested that Klarna shares could be priced at $34-$36, leading to a valuation of between $13bn-$14bn.
Klarna will now kick off its investor roadshow, with a date for its market debut on the New York Stock Exchange due to take place in the coming week (a date is still to be confirmed).
Klarna was widely expected to launch its IPO earlier this year, but market volatility – caused by Donald Trump tariff policies – reportedly forced the company to stall plans for its debut, which is now proceeding in full force.
A trio of Wall Street banks – Goldman Sachs, JP Morgan and Morgan Stanley – will be join book runners for the proposed offering.
The IPO punctuates a revival for Klarna, which saw its valuation slashed from a peak of $46bn to $6.7bn between 2021 and 2022, after a tough period in which a surge in interest rates led to an industry-wide re-rating of global tech firms. That led to Klarna to cut hundreds of, ultimately shedding about 10% of its then 7,000-strong global workforce.
Klarna has since returned to strength, reporting a profit of $21m for 2024, compared to a $244m loss a year earlier.
The announcement is likely to pave the road for other fintechs, which have been waiting for market conditions to improve – and a sector juggernaut to lead the way – before launching their own IPOs.
JLR hit by cyber incident
Newsflash: Carmaker Jaguar Land Rover has been hacked.
JLR has just released a statement, explaining that it has been “impacted by a cyber incident”.
It explains:
We took immediate action to mitigate its impact by proactively shutting down our systems. We are now working at pace to restart our global applications in a controlled manner.
At this stage there is no evidence any customer data has been stolen but our retail and production activities have been severely disrupted.
US Treasury yields jump in ‘worldwide bond market rout’
The US government’s long-dated borrowing costs are also rising, in what Marketwatch are now calling a “worldwide bond market rout”.
The yield (interest rate) on 30-year Treasury bills has risen to 4.98% this morning, its highest level since July.
That’s a rise of 6 basis points (0.06 percentage points), a slightly larger rise than we’ve seen for UK 30-year gilt yields today (which is up 4 basis points at 5.68%, a 27-year high).
Daniela Sabin Hathorn, senior market analyst at Capital.com, says inflation fears, predictions of US interest rate cuts, and worries about the Trump trade war are all pushing up America’s long-term borrowing costs.
Hathorn explains:
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Perceived pressure on Fed independence. Markets interpreted the headlines around reshaping the Fed’s leadership and the chatter about removing sitting officials as an effort to stack the Board with more dovish policymakers. The signal: a lower policy path than the economy might otherwise warrant.
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Inflation and institutional risk premia. If policy is expected to be looser, the long end embeds extra cushion for inflation uncertainty and institutional trust risk—both of which push yields higher at the back.
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Policy/legal noise around tariffs. Parallel legal questions over the scope of presidential tariff powers add another layer of uncertainty. Even without a near-term decision, that policy overhang nudges investors to demand more long-dated compensation—and seek hedges elsewhere.
Kraft Heinz to split into two companies in growth push
There’s big corporate news this morning – food giant Kraft Heinz is splitting itself up, a decade after being created through a massive merger.
Kraft Heinz plans to split into two companies – one focusing on the sauces business and the other on groceries. It’s an attempt to revive growth after years of underwhelming sales.
Miguel Patricio, executive chair of the Kraft Heinz board, says:
“Kraft Heinz’s brands are iconic and beloved, but the complexity of our current structure makes it challenging to allocate capital effectively, prioritize initiatives and drive scale in our most promising areas.”
Back in 2015, Warren Buffett and the Brazilian private equity company 3G bought Kraft Foods in a $40bn deal, and marged it with HJ Heinz, which they already owned.
The deal was not Buffett’s finest hour – last month, his Berkshire Hathaway group took a $3.76bn write-down on its stake in Kraft Heinz, acknowledging the decade-old investment hasn’t worked out as hoped.
Asset management giant Vanguard has revealed it bought a sizeable amount of the £14bn of debt sold by the UK this morning (see previous post).
“We are adding a sizable position in today’s 10-year syndication,” said Ales Koutny, head of international rates at Vanguard, adding:
“For all the fears around UK fiscal and the recent political developments, the book for the new 10-year gilt is over 10 times oversubscribed today.”
He added that UK debt looks attractive compared with Germany and France, which also face fiscal concerns, Bloomberg reports.
Strong demand (and high prices) at UK debt sale today
Despite the selloff in the bond market today, Britain has seen high demand from investors in a new debt sale this morning – but it has also paid a steep price to sell the debt.
The UK’s Debt Management Office sold £14bn of new 10-year government bonds at an auction today, and attacted over £140bn of orders!
The new debt will be priced to give a yield 8.25 basis points above the current 10-year benchmark gilt, Reuters reports.
And that means the cost to the taxpayer of Tuesday’s new issuance looks set to be the highest for 10-year debt since 2008, Reuters adds.
That, and the rise in 30-year bond yields this morning, both highlight the fiscal challenges facing Britain ahead of the autumn budget.
Although Western nations face debt challenges and growth issues, they are not about to go bust.
So declares Bill Blain, market strategist at Wind Shift Capital. He is critical of the “screeds of utterly ill-informed” commentary about “imminent defaults, IMF bailouts, and record bond yields”.
Blain says we should “relax”, as much of this chatter is “foolish inflammatory noise” which gives right-wing populists space to spin their tales and seize votes.
He writes that Western governments “face difficulties – not destruction”, explaining:
All the noise about the failure of incumbent governments obscures the reality there will be massive consequences from half-baked policies of populism – none of which are likely to solve any of the multiple real issues at the centre of Western economies; growth, infrastructure, education, defence, welfare.
We are probably in for decades of noise. During which most of us will get on with the daily struggle of paying the increasing bills and growth struggles, inflation mounts and we wonder what went wrong… or maybe things will just fix themselves. (Actually… economic history suggests they do!).
Here’s a handy chart showing how the yield on Britain’s 10-year bonds (the benchmark for borrowing costs) has risen above major rivals:
