UK 10-year borrowing costs hit fresh highs as bond market sell-off continues – business live

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

There’s no let-up in the market turmoil which gripped investors yesterday, as government borrowing costs around the world hit their highest level in years.

Shares are sliding in Asia-Pacific markets today, as renewed clashes between the US and Iran drive up the oil price.

In Toyko, the Nikkei 225 share index has slumped by 2.7% today. China’s markets are in the red too, with the CSI 300 losing 1.4%, while South Korea’s KOSPI has dropped by 3.3%.

Last night, Wall Street ended lower too – with the Russell 2000 index of smaller US companies dropping by 1.2%.

This follows a day of bond market turmoil on Tuesday, which saw the UK’s long-term borrowing costs jumped to their highest level since early 1998, while Japan’s 10-year bond yield hit its highest level since 1996.

Sovereign bond yields appear to be being pushed up by three factors – worries about rising inflation, concerns about government spending levels, and competition with AI companies who are also borrowing heavily.

As meteorological autumn begun yesterday, a chill swept through markets as rising geopolitical risk, oil prices and bond yields created a risk off start to September.

Rising bond yields push up a government’s borrowing costs – and risk eating into the new UK chancellor’s fiscal headroom, making it harder to afford new spending pledges in the upcoming budget.

Last night, Lord Jim O’Neill warned that UK mortgage rates are “going up” unless the bond markets cool.

Lord O’Neill told LBC’s Andrew Marr it had been a “tough day”, explaining:

10-year gilt yields or 10-year interest rates have risen by a quarter of a percent, which in one day is a lot. We’ve not had that since Liz Truss days…

Lord O’Neill , who has turned down a role in Andy Burnham’s government, expained that investors want to see signs that the UK has a “sensible fiscal strategy”, adding:

When I woke up this morning I thought ‘uh oh this is going to be tough’. I didn’t think it’d be quite this tough but it’s been a tough day.’