A five handle on the ten-year, and an oil price to match

Oil moves the bond market

The 10-year Treasury yield touched 5% on Monday, the first time it has done so since 2023, after oil surged on drone attacks on Saudi Arabian infrastructure including the East-West pipeline. Brent went to $108. The two moves were reported as one event: the inflation impulse from crude fed straight into the long end of the curve, and equities gave way beneath it.

Stocks declined through the US session, with AI-related shares falling worldwide and Nasdaq futures sliding before the open. SoftBank was among the heaviest casualties in Asia, its shares plunging as calls grew to slow the pace of AI development. By Tuesday morning in London, City A.M. had the FTSE 100 set to slide with oil and AI both weighing.

The Wall Street Journal framed Monday as a threshold moment — Wall Street confronting the prospect of a new era now that a 5% handle has arrived rather than been merely discussed. The dollar strengthened as yields rose, and Asian currencies weakened on Tuesday morning, the Singapore dollar among them.

Separately, the Journal looked at the hedge funds active in the Treasury market, describing them as the wild card in a bond market that has become turbulent.

Gilts, mortgages and the Bank

UK borrowing costs reached a 28-year high, with investors now pricing five Bank of England rate rises by the end of 2027. City A.M. reported economists predicting a rise from the Bank this year — a reversal of the direction of travel assumed for much of the cycle — and This is Money put the question directly: whether $108 oil and a fresh inflation shock force the Monetary Policy Committee's hand before December.

Mortgage rates have already moved. They stand at a five-month high ahead of the Bank's decision, which is a faster transmission than the policy rate itself implies.

The Bank is also expected to slow its bond sale programme. That comes alongside pressure on Andrew Bailey to pause the sales altogether, with critics putting the cost to the UK taxpayer of the quantitative tightening exercise at £100bn. A parallel argument ran in the United States, where a Wall Street Journal opinion piece contended that the Treasury's bond issuance strategy is itself hurting taxpayers.

Mortgage bonds got their own examination: the Journal set out why the asset class faces difficulty if rates rise and also if they fall, a symmetry that does not trouble most fixed income. Elsewhere in UK market politics, Labour was urged to scrap stamp duty on share trading, the argument being that it would help turn Britain from a nation of savers into a nation of investors.

Deals, floats and the rest of the tape

The Federal Reserve is girded for an expected rate rise, and CNBC counted the votes: Kevin Warsh faces a tough battle over the decision. That is a Fed being pushed towards tightening at the same moment as the Bank of England, which is not the configuration markets had been working with.

Corporate news carried on regardless. Euronext and Deutsche Boerse shares both rose after merger comments from a chief executive. Germany is seeking guarantees from UniCredit over any Commerzbank takeover. Hugo Boss's chairman stepped down as Mike Ashley's Frasers eyes a bid. GAC shares jumped in Hong Kong on tie-up plans with FAW, part of Beijing's drive to consolidate the car industry.

The IPO pipeline was busy and uneven. Aliko Dangote is aiming to raise $23bn in what would be Africa's largest-ever flotation, though DW reported that the share sale billed as one 'for the people' is out of reach for many Nigerians. Forms Syntron drew Hong Kong's next-generation tycoons into a HK$940m listing, and a Cosco Shipping arm is readying a China IPO to capitalise on the global shipbuilding wave. In London, the online furniture retailer Dusk shelved a £300m float. A group of UK banks began fundraising for a new payments venture.

Two smaller items closed the day. Crispin Odey lost his bid to overturn a lifetime ban from the City following sexual misconduct allegations. And a bed-and-breakfast on Portland in Dorset said it would not back down against Airbnb's legal attempt to claim the letters 'bnb'.