Global Market: UK Gilt yields rise as oil, US Treasury yields weigh on bonds

British government bonds sold off on Thursday, with the 10 year gilt yield rising 6 basis points to 5.44% and moving close to a 19 year high. The pressure came as firmer oil prices revived inflation concerns and higher US Treasury yields weakened demand for sovereign debt globally. Attention is also turning to Britain’s October 28 budget, where the fiscal outlook may signal greater borrowing requirements. That combination of domestic supply concerns and adverse international bond conditions pushed yields higher across the market.

For India, higher developed market yields could reduce the relative appeal of local debt, weighing on foreign portfolio flows, the rupee and government bond prices. Rising oil may also intensify imported inflation and complicate the monetary policy outlook. Banks and non banking lenders are exposed through treasury holdings and funding costs, while real estate and autos tend to be sensitive to borrowing rates. Oil marketing companies, airlines and paint producers may face cost pressure, while information technology companies have UK demand exposure. Continued gains in oil, US Treasury yields and gilts, plus heavier borrowing signals on October 28, would confirm the reading. Easing in those pressures would weaken it.