FTSE 100 Climbs for Third Day as Bond Market Pressure Eases

The FTSE 100 extended its winning streak to three days on Tuesday, driven by easing bond market pressures and gains in healthcare stocks. The index climbed about 0.6% in early trade, following gains of 0.34% on Monday and 0.32% on Friday. AstraZeneca's 2% rise provided significant support, as the pharmaceutical giant holds considerable weight in the FTSE 100. The broader STOXX 600 also moved higher, with healthcare stocks contributing to the gains.

The rebound follows a tumultuous week where the FTSE 100 fell 2.2%, its steepest weekly decline since April, as UK gilt yields surged and investors reassessed equities against government bonds. The immediate relief came from the bond market, with Euro-zone yields easing after a sharp rise driven by fiscal concerns in France and political uncertainty in Spain. However, the underlying issues persist, with the UK 10-year gilt yield climbing above 5.4%, its highest since 2007, and the 30-year yield briefly exceeding 6% for the first time since 1998.

Russ Mould, investment director at AJ Bell, noted that rising gilt yields have become a direct competitor to FTSE 100 income. He highlighted that the 10-year gilt yield was more than two percentage points above the index’s expected 2026 dividend yield, although the FTSE’s earnings yield of about 7.4% still supports equities. AstraZeneca’s performance was a key driver, with its 2% gain providing the strongest single-stock support. Healthcare strength also boosted Europe, with the STOXX 600 gaining about 0.8%, led by Denmark’s Genmab after positive late-stage blood-cancer trial results.

The FTSE 100’s rebound is supported by its defensive and internationally exposed nature, which benefits from a calmer bond market and softer oil prices. However, inflation remains a concern. S&P Global’s UK services PMI for September came in at 52.1, above the flash estimate but down from August. Firms reported the sharpest increase in selling prices since May due to rising fuel and wage costs. This renewed price pressure strengthens the case for further Bank of England tightening later this year. While the worst of the bond-market selling may be passing, historically high gilt yields, elevated mortgage costs, and UK inflation pressures mean the rebound is not yet a sign of cleared risks.