Bond Sell Offs Trouble Global Markets

A mass sell-off, sparked by fears of high inflation, caused global stock markets to end February on a poor note as rising yields encourage investors to ditch stock.

Anxiety across the financial markets prompted the sell-off in government bonds and caused the FTSE 100 index to fall by 2.5% with a drop of 168 points to 6,483. This was the biggest fall in percentage terms in a single day since October 2020, and the worst start to a year for the bonds market since 2015.

Despite a three year high previously, the pound fell by 0.5% against the dollar.

Other European markets also suffered, though not as severely, with Germany’s Dax falling by 0.67%, France’s CAC dropping 1.4%, Italy’s FTSE MiB sliding by 0.9% and Spain’s Ibex shedding 1.1%.

Across Europe, the Stoxx 600 index, which tracks the largest European companies, saw a loss of 1.7% in what was already proving to be a difficult week, down 2.5%.

US Impact

American markets followed this pattern. On Wall Street, the Dow Jones dropped 1.5%, closing the day at 30,932 points. The technology index Nasdaq closed 72 points higher but suffered its heaviest sell-off on Thursday when it dropped by 3.5%.

Among the worst-performing companies were those in the energy, mining and property sectors, industries that are particularly cautious about policies and regulations that would move away from very low interest rates.

Inflation pressures are being driven in part by investors growing confidence that Covid-19 vaccines will boost economic growth and also by Joe Biden’s US Presidential win.

Chief Economist of the Bank of England, Andy Haldane, raised concerns of borrowing costs being raised sooner than markets expect, and that central bankers should not become complacent about rising inflation and the risks that come with it.

After this warning, government bond prices dropped and pushed up five and 10-year gilt yields further to their highest level in almost a year.