So, with the yield on 30-year US Treasury bonds hitting a fresh 22-year high of 5.4583% a moment ago, it’s time to wrap up.

US 10-year bond yields have hit their highest since 2007 this afternoon too!

Here are today’s main stories:

The UK’s blue-chip stock index has ended the day in the red.

The FTSE 100 index fell by 25 points or 0.24% to close at 10,679 points.

“The continued ascent in US borrowing costs is causing jitters on the markets,” says Dan Coatsworth, head of markets at AJ Bell, adding:

“The US 30-year Treasury yield hit 5.447%, the highest level since 2004, with investors focused on inflationary pressures as oil remains stubbornly above $100 a barrel. The black stuff jumped 2.6% to nearly $106 a barrel.

“Bond investors are grumpy at the prospect of interest rates going higher, so they’re voting with their feet and selling existing bonds. As prices fall, yields rise, which reflects the higher return investors now demand.

The oil price has jumped again, pushing bond yields higher, following reports of more military clashes between Saudi Arabia and Houthi forces.

Six ballistic missiles targeting Saudi Arabia’s port of Yanbu on the Red Sea and the southwestern city of Taif have been intercepted, a Saudi military spokesperson said Thursday, blaming Iran-backed Houthi rebels in neighboring Yemen, Associated Press reports.

And Reuters reports that Yemen’s Houthis say they have attacked Saudi military sites in Jazan, which is around 1,000km to the south.

Brent crude is now up almost 4% at $107.13 a barrel, creating new inflationary concerns that are pushing up goverment borrowing costs again.

The UK’s 10-year bond yields, which had subsided earlier, are back up to 5.385%, a gain of seven basis points (0.07 of a percentage point).

Thirty-year UK bond yields are also up around 7bps to 5.88%.

The Bank of England’s Sarah Breeden has also played down the likely need for a dramatic increase in interest rates should the war in Iran continue through the autumn and into the winter months.

Speaking at the Macro Policy Forum at Imperial College in London, she said:

“We are not talking about immense differences around the MPC table. We are talking about 0.25 basis points up or down, which is small beer. It is not like 2022 when we had a mountain to climb.”

Breeden said she welcomed the review of the Bank’s remit by MPs on the Treasury committee (see earlier post).

“It is always healthy to check the remit,” she said, adding:

“The world in which we are doing monetary policy now feels very different to the one 20 years ago. In a world of shocks, of structural shifts, when you are using a different set of tools, it is healthy to step back and ask whether we are set up in the right way and have we got the legitimacy, as a bunch of unelected officials, to take the decisions we do. I think the answer is we do, but it can only be a good thing that we look at it because on the other side of the pond we have seen some challenges to central bank independence.”

The US stock market has opened in the red, as investors fret about the recent slide in bond prices.

The Dow Jones industrial average, which tracks 30 large US companies, has dipped by almost 0.54% at the open, with the broader S&P 500 index down 0.4%.

Although bond yields have dipped back from their earlier highs, there’s still a lot of uncertainty out there.

Kathleen Brooks, research director at XTB, says:

Markets are in recovery mode as we move into the US session on Thursday. Bond yields are bouncing around like a see-saw, up one minute and down the next. Brent crude spiked to as high as $106 per barrel earlier, before dropping 3%, and futures prices are now back below $100 per barrel.

There is no clear direction for markets. Are we in a bond crisis or not? Is the Iran war getting worse or is the situation improving? Are enough oil supplies getting through the Strait of Hormuz, and will Ukraine continue to target Russian refinery infrastructure?

Just in: US companies continued to hold onto staff last week, keeping layoffs low.

New data from the US Department of Labour shows there were 197,000 new ‘initial claims’ for unemployment support last week, a drop of 1,000, and a low figure in historic terms.

In the auto sector, the president of the German car industry trade body has for the ⁠first time explicitly endorsed new ⁠tariffs on ‌Chinese car imports.

It is a significant about turn for the auto industry which has previously opposed barriers to trade with China and underlines its nervousness about the future of German car manufacturing in the face of a booming Chinese car industry.

Hildegard Mueller told Handelsblatt ‌that trade defence measures could be deployed once competition has ⁠been distorted beyond a certain point, such as in ‌cases of “proven unfair behaviour.“

She emphasised that China remains an “important sales and sourcing market” and a “significant innovation hub” for the German automotive industry which has significant manufacturing interests in China including 20 Volkswagen Group production lines.

But she warned that the economic environment has changed considerably in recent years saying trade protection instruments “can be used once a certain level of competitive distortion is reached.”

The paper hints strongly at potential tariffs on hybrids. Where existing rules “fall short,” “targeted new instruments” should also be considered. Necessary adjustments should be made “promptly”, the VDA says.

The VDA’s position is in sharp contrast to its position two years ago when it vociferously opposed tariffs imposed by the European Union, a cause that was taken so seriously by the government that it too broke ranks with other EU allies and voted against tariffs on Chinese electric vehicles.

Newsflash: UK retailers are cutting back on orders at the fastest rate in at least four decades.

The CBI’s latest distributive trades survey has found that retailers reported cutting back on order volumes at the quickest rate since the survey began in 1983.

The poll also found that retail sales volumes fell at a steeper rate over the last year, and that a sizeable majority of retailers felt sales in September were poor for the time of year.

Martin Sartorius, lead economist at the CBI, says:

“Retailers reported a steep fall in annual sales volumes in September, with some firms attributing the deterioration to poor consumer sentiment. The persistent sales downturn appears to have prompted retailers to cut back on order volumes at a survey-record pace. This weakness was echoed across the distribution sector, with wholesalers and motor traders also seeing faster falls in sales.

“With the Autumn Budget fast approaching, the Government should cut Employer NICs and deliver meaningful business rates reform to lower the cost of doing business and enable retailers and other distribution firms to invest, hire and grow.”

Vistry Group, one of Britain’s biggest housebuilders, has cut its annual profit expectations after half-year losses ballooned as it grappled with a £600m pile of unsold homes.

Adam Daniel, the new chief executive of the Bovis Homes and Countryside owner, insisted “the issues can be fixed” as he set out a detailed turnaround plan that involves pulling out of private sales in south-east England and slimming operations to turn Vistry into a more focused, 12,000-homes-a-year builder.

Further job losses loom, however, after Vistry announced new cost savings of £50m, on top of a £25m voluntary redundancy programme and hiring freeze earlier this year. It said it reduced its workforce to 4,150 at the end of July, with 350 people leaving since the summer, according to PA. The company is closing some regional offices, moving from 25 to 12 regions.

Vistry reported a loss before tax of £661.3m for the first six months of the year, versus a profit of £40.9m the year before, dragged back by a £475m writedown and a £73m provision for building safety works.

For the year as a whole, it now expects to post an adjusted profit before tax of £165m, after making an adjusted loss of £83.3m in the first half, far worse than expected.

The Resolution Foundation is hosting a debate this morning to discuss the think tank’s analysis of UK property taxes. Held just a few days before the Labour party conference kicks off in Liverpool, it makes the case for an overhaul of council tax and stamp duty.

There is a growing head of steam behind the campaign to reform both taxes, something all governments have resisted over the last 30 years, fearing a backlash from those homeowners who would be charged more and little thanks from those who would benefit.

The think tank’s findings show residential property taxes are now “so far removed from modern house prices that Londoners are under-paying by £3.1bn relative to the value of their homes – with the rest of England over-paying in return”.

The report Home Economics makes the point that the UK raises more tax revenue from property than most other advanced economies, and almost twice as much as the 2% OECD average – at 3.7% of national income, or gross domestic product (GDP).

Income and regional inequality is made worse by a regressive council tax. The report says that while 80% of households in London win from the current system, 85% of households in the north east are on track to overpay tax relative to the value of their homes, “with the average overpayment a chunky £710 a year by 2030-31”.

The report says:

“Just over two thirds of households across England outside the capital overpay relative to a genuinely proportional residential property tax.”

Stamp Duty is a progressive tax that hits the richest hardest, but the report says it also prevents around 100,000 house purchases every year, about 10% of the annual 1 million sales figure.

It explains:

“This impedes economic growth by restricting beneficial house moves, from downsizing to a smaller property to moving to a new area in search of work.”

Council Tax and the main rate of residential Stamp Duty in England are set to raise £74bn by 2030-31, according to a forecast by the Office for Budget Responsibility.

Newsflash: America’s long-term borrowing costs have just hit their highest level in 22 years.

The yield, or interest rate, on 30-year US Treasury bonds has risen to 5.444%, a rise of almost 4 basis points (0.04 of a percentage point).

That looks to be the highest level since May 2004, as the bond market sell-off continues to worsen.

Norway’s central bank has hiked interest rates this morning, as it tries to dampen down inflation.

The Norges Bank’s monetary policy and financial stability committee has decided to raise the policy rate from 4.25% to 4.50%.

Announcing the decision, Norges Bank governor Ida Wolden Bache says:

“Inflation has been above target for several years. By raising the policy rate, we are helping to reduce inflation. It will likely be necessary to keep the policy rate elevated for a time, and the Committee is prepared to raise the policy rate further if needed to bring inflation down to the 2% target within a reasonable time horizon”

Newsflash: A Bank of England deputy governor is warning that interest rates will be raised, if necessary, to combat the risk of persistent inflationary pressures from higher oil prices.

Clare Lombardelli is telling the Sixth Biennial Conference on Macroeconomic Policy in Warsaw that the energy shock due to the conflict in the Middle East is likely to keep pushing UK inflation higher in the coming months.

Lombardelli points out that businesses have proved more resilient to higher energy costs than the Bank expected. But…. the longer energy prices remain high and volatile, the greater the risk for pass-through more widely into domestic wages and prices. she says.

Lombardelli is one of six Bank policymakers who voted to leave interest rates on hold last week, outvoting their three colleagues who voted for a rise in interest rates.

She also warns that other global costs could add to inflation, saying:

Strong demand for AI components is already pushing up global export prices and weather-related shocks add upside risks. On the other hand, trade diversion is reducing inflation.

The key question is whether “second-round effects” – where high inflation pushes up wages, fuelling inflation – are developing.

Lombardelli says there is “material uncertainty” about the size and duration of the energy shock.

But unless there is also evidence that the economy is weakening, interest rates will probably have to rise, she says:

The longer higher energy prices persist, the greater the risk that indirect effects build and that inflation expectations, wage bargaining and price-setting behaviour begin to adjust in response.

On that basis, policy is increasingly likely to need to tighten if elevated energy prices persist, absent clear evidence of disinflation or weaker activity. But this is by no means suggesting that monetary policy should respond mechanically to movements in energy prices. The key issue is not the spot price of energy itself but the interaction of the underlying economy, higher energy prices, and the nature of their transmission. That, ultimately, is what will determine whether Bank Rate needs to rise.

Bond traders are also alarmed that the oil price remains stubbornly over $100 a barrel.

After dropping below that level on Monday, and again on Tuesday, and Wednesday, Brent crude is now changing hands for $103.26 a barrel.

Derek Halpenny of MUFG bank says;

Brent crude oil is up close to 6% from the lows yesterday. The speech by President Pezeshkian of Iran at the UN yesterday did not suggest prospects for imminent peace were good.

There has also been a notable pick-up in reports that the US administration will soon announce an export ban on diesel. This would likely lead to further rises in diesel on international markets and could also lift gasoline prices in the US with the surplus diesel in the US causing crude oil refiners to cut production of not just diesel but gasoline as well.

The US economy may be growing too fast for investors, but it’s a different picture in developing markets.

The European Bank for Reconstruction and Development warned this morning that growth is slowing across a range of emerging market nations.

Across the 41 economies it covers, the EBRD expects growth of 2.5% this year, 0.6 percentage points below its June forecast.

The EBRD says Iraq, Lebanon and Ukraine’s economies are suffering from the effects of war, and that high energy prices, rising borrowing costs, droughts in Europe and the ongoing closure of the Strait of Hormuz are combining to depress economic growth.

UK government debt was caught up in yesterday’s bond sell-off too, with the yield on 10-year gilts jumping by 10 basis points (0.1 of a percentage point), towards its highest level since the 2007 financial crisis.

Rising gilt yields will eat into the government’s ‘headroom’ to keep within its fiscal rules, as they show the cost of servicing the national debt, and issuing new bonds, has risen.

Rachel Reeves left her successor, John Healey, a buffer of over £23bn to be keeping within the fiscal rules (to have day-to-day spending covered by tax receipts, and for the debt to be falling as a share of the economy).

With government spending running above forecast so far this year, many City economists have already predicted that this headroom has shrunk.

And the Financial Times is reporting this morning that the UK government might accept a smaller fiscal buffer, rather than raise taxes to reinforce the headroom.

They say:

Government figures are preparing to argue that maintaining March’s buffer is unnecessary at a time when borrowing and energy costs have risen sharply.

One person involved in the government’s discussions has suggested that headroom of £15bn would be sufficient, while another suggested closer to £20bn, and a third said no figure was yet being targeted.

Another senior government figure said there was “no magic figure” to demonstrate credibility to the market, arguing that Britain’s plan for rapid deficit reduction was potentially more important to borrowers.

Financial markets are now much more confident that the US Federal Reserve will raise interest rates rates at least one more time this year.

According to CME Fedwatch, there’s now a 55% chance that US rates are half a percentage point higher by the end of December – implying two quarter-point rate rises (or one beefy hike!). That’s on top of the Fed’s hike earlier this month.

Jim Reid, market strategist at Deutsche Bank, says:

The main story is still the huge global bond selloff, with yesterday seeing the biggest jump in the 10yr Treasury yield (+15.2bps) since the market turmoil around Liberation Day in April 2025.

The main driver was a strong batch of PMIs, along with a rebound in oil prices, which both led to mounting speculation about faster rate hikes. Indeed, futures this morning are pricing a 71% chance of a Fed rate hike at the next meeting in October.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Trouble is brewing in the bond markets again, as investors grow more concerned about inflation, and signs that the US economy may be running too hot.

Government borrowing costs jumped yesterday, and are rising again in Asia-Pacific markets this morning, a move that is pulling down share prices.

Yesterday’s trigger was a surprisingly strong survey of US businesses - as we covered yesterday - showing that activity was rising at the fastest pace in five years, amid a surge in costs.

This prompted a sell-off in US government bonds, as traders calculated that this might prompt further rises in US interest rates to cool inflation.

Chris Weston, head of research at brokerage Pepperstone, says:

With unemployment at 4.1% and growth running above trend, the US economy is showing signs of modest overheating. The Federal Reserve will therefore be firmly on notice.

If the next inflation readings continue to print hot, policymakers may conclude that aggregate demand needs to be brought lower through the blunt tool of higher interest rates.

Investors were also alarmed by a surprisingly weak auction of US five-year bonds last night, which attracted low demand – perhaps a sign that appetite for Treasury bonds is waning…

Cue the sell-off! With bond prices sliding, the yield (or rate of return) on five-year US Treasuries was driven over 5% for the first time since 2007. 10-year US Treasury yields surged over 5%, in their biggest one-day move since Donald Trump’s ‘Liberation Day’ tariff announcement almost 18 months ago.

These moves are rattling the wider global bond market (as US debt is the ‘risk-free’ asset used as a benchmark by global financial markets).

Already today, yields on Japan’s benchmark bonds have hit their highest level in decades.

Ipek Ozkardeskaya, senior analyst at Swissquote, explains why markets were rattled:

In the US, flash PMI figures for September showed activity expanding at the fastest pace in more than five years. New orders grew at the fastest pace since April 2022, while manufacturing hiring was the strongest since February 2021.

Massive AI investment and resilient consumer spending outweighed energy-price-led worries, though supplier delivery times stretched, according to the same data, while input costs remained elevated due to high energy prices and supply-chain pressures.

In other words, economic activity expanded strongly while price pressures remained elevated. That’s the perfect combination for fuelling further rate-hike expectations.

The agenda

• 11am BST: CBI distributive trades survey of UK retailers

• 8.30am BST: Swiss National Bank’s interest rate decision

• 1.30pm BST: US jobless claims data

• 3pm BST: Bank of England’s Clare Lombardelli speech on “Macroeconomic Policy in a Heterogeneous and Imperfectly Rational World”