FTSE 100 Plunges on Inflation Fears and High Bond Yields

The FTSE 100 index ended lower on Tuesday by 39.44 points, down 0.4%, at 10,658.13. The decline was largely due to high bond yields and inflation fears, which pushed investors to the sidelines. Brent oil prices remained stubbornly high, quoted at $108.48 a barrel in London.

Susannah Streeter, chief investment strategist at Wealth Club, said: “There’s no let-up in the volatility rippling through financial markets, with energy prices staying painfully elevated and worries swirling about the knock-on effect for inflation and interest rates.”

The threat of accelerating inflation led to higher bond yields as investors priced in more interest rate hikes. The yield on the US 10-year Treasury was quoted at 5.01%, widening from 4.96%, after earlier hitting a 19-year high of 5.02%. The UK gilts also stretched to 5.41%, a 19-year high.

Ahead of interest rate decisions in the US on Wednesday and the UK on Thursday, Morgan Stanley shifted its stance and now expects a quarter-point rate increase, with a same-size rise in December. Analysts at Peel Hunt expect a “cautious hold” from the Bank of England, differing from the market view.