Stocks slump as bond market worries bite

Stock prices in London slumped on Thursday as bond yields stayed near multi-year highs in volatile trading.

“Heightened tensions in the Middle East, concerns over the UK’s fiscal situation, and sticky inflation are all feeding into government bond yields,” said Russ Mould, AJ Bell investment director.

In London, the FTSE 100 index ended down 177.73 points, or 1.7%, at 10,428.27. The FTSE 250 fell 396.78 points, 1.6%, to 24,143.21, and the AIM all-share slid 5.36 points, 0.7%, to 782.04.

In European equity markets on Thursday, the CAC 40 in Paris ended down 1.6%, while the DAX 40 in Frankfurt closed 1.0% lower.

In New York, the Dow Jones Industrial Average was down 0.5% at the time of the closing bell in London. The S&P 500 was 0.2% lower, and the Nasdaq Composite declined 0.1%.

The heavy stock market falls came as bond yields hit multi-decade highs in a roller-coaster trading session. In the US, the sell-off in Treasuries extended into its eighth day.

The yield on the US 10-year Treasury was quoted at 5.30% on Thursday, stretched from 5.28% at the same time on Wednesday. The yield on the US 30-year Treasury was quoted at 5.63%, up from 5.62%.

The 10-year US Treasury earlier hit an intraday high of 5.34%, its highest level since April 2002, while the 30-year bond yield was at 5.66% on Thursday, also around levels not seen in about 24 years.

UBS said the sell-off in bonds – prices move inversely to yields – reflects a combination of cyclical and structural pressures.

“The conflict in the Middle East shows little sign of an imminent resolution, and the price of Brent crude remains around 100 dollars barrel,” the bank explained.

“Robust US economic activity and the surge in debt issuance by hyperscalers to fund AI expansion have added to upward pressure in yields, against a backdrop of persistent fiscal deficits.”

In the UK, the yield on 10-year gilts stood at 5.40% against 5.43% the day before, after earlier rising above 5.50%. Meanwhile, the yield on 30-year gilts topped 6.0% for the first time since 1998 before cooling to 5.97% by the time of the London equity market close.

Mr Mould pointed out that the 10-year yield is now trading well above the dividend yield on the FTSE 100 for 2026 of 3.3%.

“Any investor who is nervous about the economic outlook and feels that inflation is not about to break out on the upside could start to look toward fixed income and away from equities as a result, especially if they feel their portfolio needs a little capital protection, given how gilts redeem at par upon maturity,” he said.

The pound was quoted at 1.3204 dollars on Thursday, down from 1.3276 dollars at the same time on Wednesday. Against the euro, sterling firmed to 1.1739 euros from 1.1688 euros.

The euro slid to 1.1238 dollars from 1.1359 dollars. Against the yen, the dollar was trading at 157.48 yen, up from 157.15 yen.

Bank of England (BoE) rate setter Catherine Mann said the central bank needs to hike rates to manage inflationary risks and maintain its credibility.

In a speech, Ms Mann, a ‘hawkish’ member of the Bank’s Monetary Policy Committee, said the BoE has to increase rates at some point and cannot just rely on shifts in markets tightening financial conditions for them.

“In my view, real financial conditions are insufficiently tight. The appropriate response therefore is not to rely on risk premia to do the work of policy, but to reduce inflation risk and policy uncertainty through a clearly communicated reaction function and a sufficiently restrictive path for Bank Rate,” she said.

“At some point, we need to follow through with Bank Rate rises – to maintain credibility, and to avoid policy expectations repricing downwards and inflation expectations repricing further upwards,” she added.

Elsewhere, figures showed the UK manufacturing sector saw a growth upturn last month, but supply chains remained “under noticeable stress”.

The S&P Global purchasing managers’ index (PMI) edged up to 51.9 points in September, from 51.7 in August, and above the 50-point mark which separates growth from decline.

The PMI has been in expansion territory for the past 11 months but was just below the 52.0 flash reading.

On the FTSE 100, the bond market woes weighed on lenders NatWest, down 5.4%, Lloyds, down 4.5%, HSBC, down 4.1% and Barclays, down 4.1%. The sector is also nervously awaiting the budget on October 28, with suggestions the banking surcharge may be increased.

Notably, Sky News reported on Thursday afternoon that Chancellor John Healey has summoned the chief executives of lenders including Barclays, HSBC, Lloyds Banking Group and NatWest Group to a meeting next Tuesday.

Sky noted that this will be the first such in-person meeting that Mr Healey has held with UK bank chiefs since he became Chancellor, and comes ahead of his first budget announcement later this month.

Interest rate-sensitive housebuilders were also on the back foot. Barratt Redrow fell 4.4%, Bellway 5.3%, Persimmon 5.1% and Taylor Wimpey 5.5%.

House prices rose 0.8% on-year in September, cooling markedly from a 1.6% hike in August, data from mortgage lender Nationwide showed. It was the weakest rate of growth since December 2025.

RBC Capital Markets equity analyst Anthony Codling said the figures, while not a “disaster”, are a “reminder that the market remains a hostage to forces beyond its control: geopolitical tension in the Middle East is driving energy prices higher, keeping inflation nerves alive and mortgage rates sticky.”

Among small caps, Light Science Technologies plunged 18% as it warned the full-year outturn will be below previous expectations, reflecting delayed approvals within the Passive Fire Protection division.

The Derbyshire-based agricultural lighting and monitoring systems provider now expects to report full-year revenue in the range of £9.0 million to £9.5 million, which would still be higher than the prior year’s £8.6 million.

Shore Capital analyst Andrew Saunders, however, had forecast revenue of £11.5 million.

Meanwhile, RentGuarantor soared 18% as it forecast revenue, earnings before interest, tax, depreciation and amortisation will be materially above current market expectations.

It put market consensus for revenue at between £14 million to £15.1 million and Ebitda at £4.1 million to £4.9 million.

Brent oil was quoted at 101.71 dollars a barrel in London on Thursday at the time of the equity market close, down from 103.82 dollars late on Wednesday.

Gold was quoted at 4,163.35 dollars an ounce, up from 4,158.28 dollars.

The biggest risers on the FTSE 100 were Autotrader Group, up 7.6p at 460.4p, BP, up 7.7p at 557.1p, Airtel Africa, up 4.0p at 304.6p, Tesco, up 6.0p at 474.8p, and Computacenter, up 65.0p at 5,470.0p.

The biggest fallers on the FTSE 100 were Games Workshop Group, down 1,120.0p at 16,870.0p, Lion Finance Group, down 830.0p at 13,540.0p, NatWest Group, down 37.0p at 651.4p, Weir, down 128.0p at 2,574.0p, and Lloyds Banking Group, down 4.8p at 102.1p.

Friday’s local corporate calendar has full-year results from pub operator JD Wetherspoon.

Friday’s global economic calendar has eurozone inflation figures and the US jobs report, including nonfarm payrolls data.

– Contributed by Alliance News