UK Stocks Decline as 30-Year Gilt Yield Surges to 28-Year High

London's benchmark stock index fell on Thursday, dragged down by a global selloff in government bonds that sent the yield on the UK's 30-year gilt to 6%, its highest level since February 1998. The move reflects growing investor concerns over persistent inflation, government deficits, and the supply of sovereign debt.

Markets React to Rising Yields

The FTSE 100 index was down 1.85% as of 08:00 GMT, according to market data. The selloff was mirrored across Europe, with Germany’s DAX index falling 1.33% and France’s CAC 40 losing 1.46%.

In currency markets, the British pound slipped 0.24% against the dollar to trade at $1.3234. Higher government bond yields typically increase the cost of borrowing for companies and consumers, which can weigh on economic growth and corporate profitability, souring investor sentiment towards equities.

Global Bond Selloff Context

The pressure on UK gilts is part of a wider trend in global debt markets. In the United States, the 10-year Treasury yield hit 5.306% on Wednesday, its highest point since 2007. According to Mohit Kumar at Jefferies, rising interest rates "continued to be the main market driver" amid what he described as a "buyers strike" in the bond market.

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This follows a recent syndication of new 10-year UK government bonds that were priced to pay the highest yield for that maturity since 1999, signaling that investors are demanding greater compensation to hold long-term government debt.

UK Economic Data Points to Slowdown

Adding to domestic economic concerns, a report from mortgage lender Nationwide showed that UK house price growth slowed to a nine-month low in September. Annual price growth eased to 0.8% from 1.6% in August, while prices fell 0.2% month-on-month.

Nationwide attributed the slowdown to the impact of higher energy prices and expectations of further interest rate hikes, which are dampening housing demand and pointing to a subdued market outlook.