US borrowing costs highest since 2007 as bonds spike hits shares

Global stocks fell to a seven-month low and US borrowing costs hit a 16- year high as tensions in the Middle East and worries about inflation wreaked havoc on financial markets.

With fears mounting that the war between Israel and terrorist group Hamas could broaden into a regional conflict, the MSCI All-World index fell to its lowest level since March when turmoil in the banking sector sent shares tumbling.

And there were further ructions on the bond markets as investors continued to snub US debt despite its traditional ‘haven’ status as a safe place to park money in times of trouble.

The yield on ten-year US Treasuries marched above 5pc to the highest since 2007 before easing while ten-year UK gilt yields rose back towards this summer’s 15- year highs above 4.7pc. Borrowing costs across the eurozone also jumped before edging lower later in the day.

Government bond prices have been falling in the US, UK and Europe for weeks as investors fret over the prospect that interest rates will remain elevated for some time to bring inflation back under control.

There are also concerns about spiralling levels of government debt, particularly in the US.

When bond prices fall, the yield rises, pushing up borrowing costs for governments, businesses and households.

Russ Mould, investment director at AJ Bell, noted that markets ‘remain edgy’ amid the ongoing conflict in the Middle East.

‘Any sign of de-escalation would be received positively for humanitarian reasons but also by investors wary of the risks of the war in Gaza spreading to other parts of the region or bringing in other actors,’ he said.

But he added: ‘Even a war in the Middle East is not persuading investors to buy US Treasuries, an asset class that is usually seen as the ultimate haven because they are priced in the world’s reserve currency and come with the backing of America, the world’s leading economic and military power.’

The sell-off on the bond markets has sent shockwaves through the financial system and hit share prices in the process.

‘Five per cent from an economic perspective is just another number, but as far as investors are concerned it resonates,’ said Chris Scicluna, chief economist at Daiwa Capital, referring to the yield on US Treasuries.

The FTSE 100 index fell 0.4pc, or 27.31 points, to 7374.83 while shares in Shanghai and Shenzhen fell to their lowest level for four years amid worries about the health of the Chinese economy – the second largest in the world behind the US.

The Vix ‘fear index’ of US stock market volatility hit its highest level since March when a number of US lenders collapsed including Silicon Valley Bank and Credit Suisse was forced into the hands of UBS in an emergency takeover to prop it up.

Robert Farago, head of strategic asset allocation at Hargreaves Lansdown, said: ‘Central banks across the developed world indicate that interest rates are close to the peak, but they will not cut until inflation is convincingly lower.’

The Bank of England raised interest rates 14 successive times between December 2021 and August this year – taking them from 0.1pc to 5.25pc – in a bid to curb runaway inflation.

The central bank hit pause in September, however, and bets on financial markets suggest rates may now have peaked.

But while inflation has come down from last year’s high of 11.1pc, it remains well above the 2pc target at 6.7pc, meaning the Bank could strike again with further rate hikes.

EU Green light for FarFetch to take stake in Net-A-Porter 

European regulators have cleared Farfetch’s acquisition of a stake in rival online luxury fashion seller Yoox Net-A-Porter (YNAP).

Farfetch is to buy a 47.5pc slice of YNAP from Swiss-based Richemont in exchange for more than 50m Farfetch shares. Under the terms of the deal, Farfetch can in future buy the remaining shares in YNAP (model pictured).

YNAP was created in 2015 after a merger between the Italian group Yoox and Britain’s Net-A-Porter.

The green light from the European Commission was the last regulatory hurdle needed for the deal to go through. But Richemont, which owns luxury brands including Cartier, said completion of the deal remains subject to ‘certain other conditions that Richemont and Farfetch are working towards fulfilling’.

Farfetch is based in London but listed in New York in September 2018. It has struggled to turn a profit due to high technology and marketing costs. Shares have plunged around 97pc since a peak in February 2021.

Bernstein analysts said last week that Farfetch’s woes could raise complications for Richemont.

This post first appeared on Dailymail.co.uk