FTSE 100 extends rebound as bond market pressure eases

The FTSE 100 climbed for a third consecutive day on Tuesday, as easing pressure in global bond markets and gains in healthcare stocks lifted London’s market. The blue-chip index rose 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. The broader STOXX 600 also moved higher, benefiting from healthcare strength.

The recent rebound follows a challenging week where the FTSE 100 dropped 2.2%, its steepest weekly decline since April, as UK gilt yields surged and investors reassessed equities against government bonds. Relief came from the bond market, where Euro-zone yields eased after sharp rises driven by fiscal concerns in France and political uncertainty in Spain. However, the UK 10-year gilt yield remained high at above 5.4%, its highest since 2007, while the 30-year yield briefly exceeded 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 observed that the 10-year gilt yield was more than two percentage points above the index’s expected 2026 dividend yield, though the FTSE’s earnings yield of about 7.4% still provided a valuation case. AstraZeneca’s gain was particularly impactful due to its large weight in the FTSE 100, meaning its moves significantly influence the index.

Healthcare strength also supported Europe, with the STOXX 600 gaining about 0.8% and the sector up roughly 1.6%. Denmark’s Genmab surged after positive late-stage blood-cancer trial results. The FTSE 100’s defensive and internationally exposed nature means a calmer bond market and softer oil prices can support large healthcare, consumer, and industrial names, even amid domestic economic uncertainty.

The underlying concern remains inflation. S&P Global’s UK services PMI came in at 52.1 for September, above the flash estimate of 51.7 but down from 52.5 in August. Firms reported the sharpest increase in selling prices since May due to rising fuel and wage costs. Tim Moore, economics director at S&P Global Market Intelligence, noted that higher fuel costs reversed some of the easing in service-sector inflation seen earlier this year. Thomas Pugh, chief economist at RSM UK, suggested that the renewed price pressure strengthens the case for further Bank of England tightening later this year.

The FTSE 100’s three-session rebound suggests the worst of the forced bond-market selling may be passing. However, with gilt yields still historically high, mortgage costs elevated, and UK inflation pressures reappearing, the rebound is not yet proof that the risk has cleared.