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Pound struggles amid bond market turmoil
Sterling slumped as surging UK bond yields and growing concerns over fiscal stability rattled financial markets.
US 10-year Treasury yields eased to 4.68%, snapping a five-session rally.
Minutes from the Fed's December meeting flagged risks of elevated inflation.
UK 10-year gilt yields hit their highest level since 2008, at 4.8%.
The yield on the benchmark US 10-year Treasury eased to 4.68% on Thursday, retreating from a five-day climb that peaked at 4.73%, the highest level since October 2023. The decline comes as investors digest inflation concerns, potential trade policy shifts under President-elect Donald Trump, and hawkish signals from the Federal Reserve.
Minutes from the Federal Open Market Committee's (FOMC) December meeting underscored heightened upside risks to inflation, with officials signaling a slower pace of rate cuts moving forward. Labor market data painted a mixed picture: job openings came in stronger than expected, while ADP’s private-sector employment report fell short of forecasts. All eyes are now on Friday’s nonfarm payrolls report, seen as a critical indicator for the Fed’s next steps.
Adding to Thursday’s market dynamics, the bond market will close early in observance of the national day of mourning for former President Jimmy Carter.
UK bond yields surge as fiscal worries mount
UK government bonds came under intense pressure, with 10-year gilt yields jumping above 4.8%, their highest level since August 2008. Meanwhile, 30-year gilt yields soared to 5.47%, a level not seen since 1998. Concerns over the UK’s mounting debt levels and doubts about the government’s ability to balance public finances with ambitious budget plans fueled the selloff.
Sterling took a hit, dropping sharply against major currencies as the bond market turmoil reverberated through financial markets. While the current moves are less severe than those seen during the mini-budget crisis under former Prime Minister Liz Truss in 2022, investors are drawing parallels to that period of fiscal instability.
BoJ highlights rising prices amid moderate recovery
The Bank of Japan (BoJ) upgraded its economic outlook for two of its nine regions in its latest Regional Economic Report, citing signs of a moderate recovery in Tohoku and Hokuriku. The assessment for the remaining regions remained unchanged, with the central bank describing conditions as “picking up” or “recovering moderately.”
The report also highlighted an expanding wave of price hikes by businesses grappling with rising wage pressures. While larger firms are deliberating the extent of wage increases, smaller companies remain cautious, wary of the impact on profit margins. The data underscores the challenges the BoJ faces as it navigates the delicate balance between supporting growth and managing inflation.
