The FTSE 100 fell as much as 0.4% to 10,666.91 in early trading on Thursday, as a global sell-off in government bonds raised concerns over borrowing costs and the outlook for interest rates.
The more domestically focused FTSE 250 dropped 0.5% to 24,241.01, leaving rate-sensitive UK shares under greater pressure.
Japan became the latest focus of the bond rout, with its benchmark 10-year government bond yield surging to 3.08%, the highest level since 1996. Australian and New Zealand yields also rose sharply, while France’s 10-year borrowing cost touched its highest level since 2008.
The moves followed Wednesday’s sell-off in US Treasuries, where the 10-year yield jumped from around 4.96% to as high as 5.12%, its biggest one-day rise since the tariff-related market turmoil of April 2025.
Markets are increasingly pricing the possibility of further Federal Reserve tightening following unexpectedly strong US economic data. Money-market pricing cited in the report implies a 70% probability of another US rate increase in October, with traders anticipating as many as three increases by April 2027.
Oil is compounding the pressure. Brent crude remains above $100 a barrel after jumping around 3.9% on Wednesday, increasing concern that renewed energy inflation could make it harder for central banks to bring price pressures under control.
For investors, the combination is particularly challenging: higher bond yields reduce equity valuations at the same time that expensive oil threatens company margins and consumer spending. Growth stocks, property, infrastructure and heavily indebted companies are particularly exposed because more of their valuation depends on future cash flows or cheap financing.
The immediate market test is whether global yields stabilise. If the US 10-year remains above 5% and Japanese yields continue setting multi-decade highs, investors may increasingly treat the move as a structural repricing of interest rates rather than a temporary bond-market sell-off, creating scope for further pressure on equity valuations.
