UK Gilt Yields Ease but September Selloff Deepens

UK 10-year gilt yields hovered below 5.4% at the end of September, slightly below a 19-year high reached earlier in the month, as markets became more cautious about further central bank rate hikes. Despite this, gilts endured a sharp selloff over the month, with yields rising 23 bps. Higher energy prices stoked inflation concerns, while expectations that the AI boom could support economic growth strengthened the case for higher-for-longer interest rates. Market sentiment improved on Wednesday as central bankers pushed back against expectations of rapid and sustained tightening. Bank of England policymaker Alan Taylor played down the need for rate hikes to address the UK’s energy crunch, contrasting with more hawkish comments earlier in the month from other MPC members, including Governor Andrew Bailey. In the US, Fed's John Williams likewise said there was time to assess incoming data before raising rates again. Meanwhile, upward revised figures showed UK GDP grew 0.5% in Q2.