FX.co ★ UK Gilt Yields Ease but September Selloff Deepens

UK 10-year gilt yields hovered just below 5.4% at the end of September, slightly under the 19-year high hit earlier in the month, as markets turned more cautious about the prospect of further central bank rate increases. Nonetheless, gilts suffered a marked selloff over the month, with yields climbing 23 basis points. Rising energy prices intensified inflation worries, while growing expectations that the AI boom could bolster economic growth reinforced the case for interest rates staying higher for longer. Market sentiment improved on Wednesday after central bankers pushed back against the likelihood of rapid and sustained tightening. Bank of England policymaker Alan Taylor downplayed the need for additional rate hikes to tackle the UK’s energy shock, in contrast to the more hawkish stance earlier in the month from other MPC members, including Governor Andrew Bailey. In the US, Fed official John Williams similarly signalled there was time to evaluate incoming data before considering another rate increase. Meanwhile, upwardly revised figures showed UK GDP expanded by 0.5% in Q2.