Impact of rising US bond yields on UK assets

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The market has expressed the view that US interest rates will remain high for a long time amidst strong US economic indicators, and the selling of US government bonds is progressing.

A number of positive U.S. economic indicators have put a damper on expectations for interest rate cuts early next year, and many believe interest rates will remain high for an extended period of time.

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The yield on the 10-year U.S. Treasury note was 4.80% on Wednesday morning, the highest level since 2007.

As bond prices fall and yields rise, the impact on borrowing costs is hitting interest rate-sensitive assets such as stocks, corporate bonds and government bonds themselves.

For people in the UK, a potential side effect of the US government bond crash is higher UK government bond yields and higher borrowing costs, which could have far-reaching effects such as lower corporate profits and investment, and even housing. It may also affect prices.

A steady rise in US Treasury yields supported the dollar, pushing GBP/USD down to 1.2124. In July, GBP/USD had risen to 1.319.

A weaker pound could help overseas earners in the FTSE 100 index, but if global bond yields rise at the same level as US Treasuries, it will raise funding costs for major companies.

There are also concerns about the UK housing market, but no major disruption has yet been seen. If yields continue to rise, this could impact mortgage rates and further constrain UK property transactions.

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