As Trump’s inauguration approaches, Britain has begun to feel the heat. A selloff in global bonds has particularly affected gilts, causing the UK bond markets to be slow. Additionally, the pound is on the brink of its most significant three-day decline in nearly two years. Apparently, bond yields have surged globally this week due to concerns regarding inflation, the likelihood of a decrease in interest rates, and the uncertainty surrounding the foreign and economic policies of U.S. president-elect Donald Trump. Also, there is the potential for trillions of dollars in additional debt sales. 📉🇬🇧🇪🇺 Bond Yields Spike as Markets Eye UK Fiscal Outlook, Eurozone Supply, and U.S. Tariff Impact Tickers of interest: $GBP , $EUR , $BND , $TLT Full Story → https://t.co/UoWdvnYrUb pic.twitter.com/08ipWxUZj4 — PiQ (@PiQSuite) January 9, 2025 As a result, this has rubbed off on Britain . Now, the UK bond market is once again underperforming the rest of Europe. Also, Sterling’s last down was 0.6% at $1.229, having reached its lowest level since November 2023 earlier in the day. Additionally, the UK bond market experienced a significant decline on Wednesday following the opening of the US market. Despite this, the US market will have a shortened trading day today in honour of President Carter’s funeral. However, there is a possibility that there will be additional downside. Russ Mould, investment director of AJ Bell in London, said, “This rout is not a UK but a global phenomenon. Sovereign debt is the elephant in the room. Will the UK achieve the growth we’d all like to see? The markets are not convinced.” Notably, the US dollar index, which measures the currency’s performance against sterling, the euro, and four other key counterparts, moved up to 109.08. This is not far off its highest level since November 2022 of 109.54, recorded a week ago. Britain markets condition The sale of UK bonds this week is a warning shot from bond vigilantes. The UK relies on investors to fund its deficit. The UK is not alone in needing this; however, because the USD is the reserve currency, the US can cover its deficit more readily. On the other hand, the Eurozone as a whole is in surplus. Since the market’s focus in 2025 has shifted to the sustainability of public sector budgets, the UK is obviously under fire. The weakening in UK bonds has spread to other UK assets. Today, the pound has fallen further, with GBP/USD falling below $1.23, reaching its lowest level in over a year. So far this year, the pound has been the weakest currency in the G10 foreign exchange market. This is quite the fall. Last year, it was at the top of the G10 FX space for most of the year. It is obvious that when a currency falls and bond yields rise, it indicates a de-anchoring of the bond market. This can be a warning indicator that a fiscal crisis is imminent. Meanwhile, the retail industry is currently experiencing a significant price decline. For instance, M&S, a significant retailer in the UK, has experienced a decline of over 7%. This is despite the company reporting robust sales during the Christmas season. Also, the FTSE 250 is down by 0.8%, and Tesco, the UK’s largest grocer by market share, is also down by over 2%. This is despite the fact that it reported a robust Q3 earnings report and maintained its fiscal fourth quarter forecast. The market is currently in a state of agitation and is more inclined to sell than to purchase. Source: Bloomberg Meanwhile, as trade commences, the fiscal situation of the UK remains risky. The relentless increase in UK yields has persisted, although at a slower pace. UK Gilt yields have increased once more at the opening, with the 10-year yield opening 5bp higher. However, yields have since recovered marginally. US tariff threats impact on China Trump has pledged to impose tariffs of up to 10% on global imports and 60% on Chinese goods, as well as a 25% import surcharge on Canadian and Mexican products. Trade experts think these duties would disrupt trade flows, increase costs, and provoke retaliation. The markets are already feeling the threat. Goldman Sachs said, “China is likely to be the primary target of the Trump trade wars 2.0.” In response, the country’s stock exchanges and central bank are already defending a tumbling yuan and equities. On the other hand, investors are already gaining an advantage. Apparently, Chinese stocks fell as official statistics revealed continued deflationary pressure despite fresh government consumer stimulus. This fueled a rush for offshore assets, while Hong Kong shares closed at a one-month low. The Mainland Chinese blue chips and Hong Kong’s Hang Seng closed down 0.3% and 0.2%, respectively. Still, Barclays anticipates that the yuan will reach 7.5 per dollar by the end of 2025, and it will decline to 8.4 in the event that the United States implements 60% tariffs. Other analysts predict that China will permit the yuan to weaken further in order to assist exporters in mitigating the effects of tariffs, albeit progressively. However, the currency has been impacted by a weak economy, which has pushed down Chinese government bond yields, even in the absence of tariffs. This has exacerbated the disparity with elevated U.S. Treasury yields. Meanwhile, Gold prices were steady at $2,663 per ounce after reaching an overnight high of $2,670.10, the highest level since December 13. Bitcoin was flat at $93,432, following a 7% drop in the previous two days. Land a High-Paying Web3 Job in 90 Days: The Ultimate Roadmap
