Fiscal Spending Concerns Push UK Bond Yields Higher

• In the UK, gilt yields jumped after Prime Minister Andy Burnham flagged greater “flexibility” around fiscal rules. Markets interpreted this as a greater emphasis on government borrowing and the potential for increased inflationary pressures.
• The sell-off spilled into global bond markets, with Australian 10-year government bond yields rising 6bps to 4.96%, their highest level this month.
• In New Zealand inflation accelerated to 4.1% year-on-year, slightly above expectations, driven largely by fuel and fuel related costs. Similar to Australia, inflation remains well above the central bank’s target, highlighting how higher energy prices continue to complicate the path back to price stability.
• While recent inflation prints in the US and Canada have surprised to the downside, markets remain wary that the recent higher oil prices could spark a secondary round of inflationary pressure. That uncertainty is likely to keep bond markets highly sensitive to both geopolitical developments and upcoming inflation data.
• US equities finished the day lower on Monday with cross hairs focused on the Middle East for signs of de-escalation. Whilst the chip sector clawed back from last weeks lows, the focus for markets will be earnings reports from major tech companies over the coming week.