Stocks and bonds tumble as UK debt sell-off ripples across global markets

Stocks and bond prices tumbled at the end of a tumultuous week, as a sharp sell-off in UK government debt cascaded into global markets.

Europe’s regional Stoxx 600 dropped 1.6 cent, in a decline that took the gauge’s losses from its high point for the year in early January to 20 per cent, meeting the definition of a technical ‘bear market’.

London’s FTSE 100 extended its initial fall to move 1.5 per cent lower following Westminster’s mini-budget on Friday, which included details of bold cuts in business and personal tax rates as part of a growth package aimed at stimulating growth in Britain’s stagnating economy.

UK government bond yields jumped by historic magnitudes across all maturities amid concerns over the cost of the government’s borrowing plans, which will be financed in large part by selling gilts.

The 10-year gilt yield soared more than 0.2 percentage points to 3.76 per cent, bringing its rise for the week to over 0.6 percentage points — its biggest such increase since 1998. The policy-sensitive two-year yield surged 0.47 percentage points to 3.98 per cent.

The five-year yield posted its biggest daily rise on record, according to Bloomberg data.

In turn, the pound dropped even further — losing 1.1 per cent against the dollar to a new 37-year low of $1.113.

The acute pressure in UK financial markets rippled across global asset prices, as fears intensified about how major central banks will continue to turn the screws on monetary policy while attempting to spur economic growth.

Futures contracts tracking Wall Street’s S&P 500 gauge slid 0.9 per cent. Those tracking the Nasdaq 100 gauge lost 1 per cent. US government debt was also hit, with the yield on the two-year Treasury note adding 0.06 percentage points to 4.19 per cent.

The US Federal Reserve had on Wednesday set the stage for a flurry of interest rate rises by other central banks this week, lifting borrowing costs by 0.75 percentage points for the third time in a row and taking its target range to 3 to 3.25 per cent.

A day later, the Bank of England joined the tightening trend — jacking up rates by 0.5 percentage points to 2.25 per cent, while the Swiss National Bank took its lending rate into positive territory for the first time since 2015, at 0.5 per cent.

The dollar rose 0.7 per cent against a basket of six peers on Friday to hit a fresh 20-year high.