The sharp rise in nazlata yields is not just about the UK economy

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All eyes on the US jobs report
The US non-farm payrolls report for December will be released later on Friday. Economists expect it to show an increase of 155,000 jobsdown from 227,000 in November, and the unemployment rate will remain unchanged at 4.2%. Analysts from Goldman Sachs and Citigrouphowever, they think both numbers will be worse than consensus forecasts.

US markets dark, European markets close higher
American markets were closed on Thursday in honor of former US President Jimmy Carter, who died at the end of December at the age of 100. Asia-Pacific markets fell on friday. Japan’s Nikkei 225 fell about 1%, leading losses in the region, as data showed household spending fell less than expected in November. China’s CSI 300 lost 1.25% after the People’s Bank of China bond purchase suspended.

All-time lows for 10-year Chinese bond yields
Chinese government bonds have seen a strong rise since December, with 10-year yields fell to an all-time low this month after falling by about 34 basis points, according to LSEG data. Loan request from consumers and businesses in China was weak, causing banks to snap up government bonds, pressuring yields.

Fed governor says tapering in December should be ‘last step’
US Federal Reserve Governor Michelle Bowman said that the Fed December interest rate reduction was supposed to be his “last step in the policy recalibration phase.” This suggests that Bowman, who is a voting member of the Federal Open Market Committee, they may oppose further cuts this year. Other Fed officials who spoke this week were more optimistic about rate cuts.

[PRO] UK SME shares to buy
There may be some questions about the strength of the UK economy right now. But Barclays still sees investment opportunities in the country, naming three small- and mid-cap stocks it is currently betting on—two of which have implied growth of over 40%.

The UK government’s long-term borrowing costs are currently flat almost three decades tall. From 6am London time, the yield on 30-year gilding it was 5.359%, which is the highest level since 1998.

Yields on gilts — the fancy British term for government bonds like U.S. Treasuries — rose sharply after the U.K.’s Debt Management Office on Tuesday sold at auction 2.25 billion pounds ($2.83 billion) worth of gilts maturing in 30 years.

Typically, bond yields rise in response to higher interest rates, which remain high when inflation remains stubbornly above most central banks’ 2% target.

In the UK this is a problem. Headline inflation rose to 2.6% in Novemberat the annual level, the second consecutive monthly growth.

Even worse, in October, UK gross domestic product decreased by 0.1% on a monthly basis, raising the specter of stagflation — when the economy struggles with high inflation and a stagnant economy.

Labor government plans Tax hikes and a significant increase in borrowing have also put pressure on gold prices, which are moving in the opposite direction to yields.

Also consider currency movements. Higher government bond yields often translate into a stronger currency as the yields attract global investors, who fuel demand.

However, the British pound fell against the US dollar even as gold yields rose.

Taken together, these factors paint a picture of a weak economy, so it seems natural that investors would demand higher yields if they were to lend money to the UK government.

But the situation should not be exaggerated. Consider Liz Truss disastrous”mini-budget” in 2022, which caused a massive sale in gilts and a spike in yields within days (yields usually move at a glacial pace).

During this period, 30-year US bond yield was about 3.5 percent. It was 4.9% on Friday, which means the gilts are keeping up with government bonds, not going wild. In other words, the recent rise in gilt yields is not necessarily due to the turmoil in the UK, as bond yields, interest rates and inflation fears remain high globally.

It is always scary when a country’s financial markets collapse. When others are facing the same problems, it may make the scenario easier to bear.

— CNBC’s Chloe Taylor, Jenni Reid, Karen Gilchrist and Elliot Smith contributed to this report.