Inflation worries feed through to stock, bond markets

Published On: October 7, 2021Categories: Stocks & Shares1.4 min read

Britain’s 10-year gilt yield climbed to 1.152 per cent, its highest level since May 2019

Growing worries about inflation after the global surge in energy prices have fed through to stock and bond markets.

Government bond yields, which move inversely to bond prices, rose sharply today as economists forecast that inflation could peak above 5 per cent in the UK next spring.

Britain’s 10-year gilt yield climbed to 1.152 per cent this morning, its highest level since May 2019 — while equity markets in Asia, Europe and America retreated.

Gas prices have soared to all-time highs in the UK and Europe this week amid an international supply shortage. UK benchmark month-ahead gas prices surpassed 300p a therm for the first time ever yesterday and spiked as high as 407p a therm this morning.

They later fell back after President Putin suggested that Russia would boost gas supplies to Europe. Prices remain nearly eight times higher than a year ago and have more than doubled in the past month alone. This has also fed through to higher electricity prices, since gas-fired power stations provide the biggest share of Britain’s electricity generation.

Yields dropped later in the session, with the UK’s 10-year guilt falling to 1.079 per cent and the US Treasury benchmark 10-year yield dropping from a three-month high to 1.5154 per cent.

Ole Hansen of Saxo Bank said that unless gas producers increased supplies, the only other option is for prices to reach levels that trigger demand destruction, and that is the phase we have now entered.

He warned that the result would be a sharp reversal of the growth fest seen this past year and the realisation inflation is anything but transitory.

The energy supply crisis has only bolstered investors’ apprehension around price growth as the global economy continues its patchy post-pandemic recovery.

About the Author: Jonathan Adams

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