FTSE 100 extends rally as bond market pressure eases
The FTSE 100 extended its winning streak to three days on Tuesday, as easing pressure in global bond markets and gains in healthcare stocks supported the rebound. 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 roughly 2% increase, providing significant support to the index. Meanwhile, the broader STOXX 600 also moved higher, reflecting broader gains in Europe.
The relief comes after a turbulent week where the FTSE 100 suffered a 2.2% decline, its steepest weekly drop since April, amid surging UK gilt yields and a reassessment of equities against government bonds. Euro-zone yields eased on Tuesday, moderating 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 are now a direct competitor to FTSE 100 income, with the 10-year gilt yield more than two percentage points above the index’s expected 2026 dividend yield. Despite this, the FTSE’s earnings yield of about 7.4% still leaves equities with a valuation case. Healthcare strength also boosted Europe, with the STOXX 600 gaining about 0.8%, driven by a 1.6% rise in the sector after positive trial results from Denmark’s Genmab.
The FTSE 100’s rebound is supported by its defensive and internationally exposed nature, benefiting from a calmer bond market and softer oil prices. However, inflation remains a concern, with S&P Global’s UK services PMI coming in at 52.1 for September, indicating renewed price pressure due to rising fuel and wage costs. Economists suggest this 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 and elevated mortgage costs mean the risk is not yet fully cleared.