Mortgage borrowers are being urged to lock in deals quickly before borrowing rates rise, as this week’s global bond sell-off ripples through the economy.
Although the turmoil in the bond markets has cooled – for now, at least – the consequences of the jump in bond yields could be serious for borrowers.
That is because UK swap rates – the interest rates that banks charge when they borrow from each other – have been pushed up by the rise in gilt yields.
The five-year swaps rate yesterday rose above 4.52%, the highest level since October 2023. That would be expected to result in higher interest rates on fixed-term mortgages.
The AJ Bell investment director, Russ Mould, said: “Credit card, mortgage and auto loan interest rates will rise if bond yields rise, as the lenders seek to preserve loan book margins and manage their risk.”
Such moves would undermine Andy Burnham’s push to ease cost of living pressures.
Yesterday the yield on UK 10-year government debt hit its highest level since 2008, before retreating to less painful levels thanks to a drop in the oil price.
Oil has been one of the key factors driving the bond market sell-off, as inflationary pressures from high prices could force central banks to raise interest rates.
The oil price is dropping this morning, which should help ease the bond market wobble.
Brent crude has fallen by 1.1% to $94.57 a barrel, having traded as high as $97 a barrel on Wednesday.
UK bond prices are strengthening a little, which is pushing down the yield (or rate of return) on these gilts.
Ten-year UK bond yields have dropped by more than 4 basis points (0.04 of a percentage point) to 5.195%, away from the 18-year high set yesterday.
Thirty-year bond yields are down 4bps, too, to 5.831%.
Today’s key events
• 9am BST: eurozone services PMI report for August
• 9.30am BST: UK services PMI report for August
• 9.30am BST: ONS business insights and impact on the UK economy
• 10.30am BST: Challenger survey of US job cuts
• 3pm BST: US services PMI report for August
We’ll be tracking all the main events throughout the day on our business live blog …
