FTSE 100 Climbs for Third Day as Bond Market Eases
The FTSE 100 extended its winning streak to three days on Tuesday, as easing pressure in global bond markets and strong performances in healthcare stocks provided a boost. The index climbed about 0.6% in early trade, following gains of 0.34% on Monday and 0.32% on Friday. AstraZeneca led the charge with a 2% increase, significantly influencing the index due to its large weighting. The broader STOXX 600 also rose, supported by healthcare gains, including a surge in Denmark’s Genmab after positive trial results.
The rebound follows a turbulent week where the FTSE 100 dropped 2.2%, its steepest weekly decline since April, as investors reassessed equities against government bonds amid surging UK gilt yields. The 10-year gilt yield climbed above 5.4%, its highest since 2007, while the 30-year yield briefly exceeded 6% for the first time since 1998. Despite the relief in bond markets, the underlying issues remain, with Euro-zone yields easing after recent spikes driven by fiscal concerns in France and political uncertainty in Spain.
Analysts noted that rising gilt yields are now competing with FTSE 100 income, with the 10-year gilt yield more than two percentage points above the index’s expected 2026 dividend yield. However, the FTSE’s earnings yield of about 7.4% still presents a valuation case for equities. The FTSE 100’s defensive nature and international exposure helped support large healthcare, consumer, and industrial names, even as domestic economic conditions remain uncertain.
The resilience of the rebound remains uncertain, as inflation pressures re-emerge. The UK services PMI for September came in at 52.1, slightly higher than the flash estimate but down from August. Firms reported the sharpest increase in selling prices since May, driven by rising fuel and wage costs. Analysts suggested this renewed price pressure strengthens the case for further Bank of England tightening later this year. While the worst of the bond-market selloff may be passing, historically high gilt yields and elevated mortgage costs keep the recovery fragile.