1st Oct 2026 17:08
(Alliance News) - Stock prices in London slumped on Thursday as bond yields stayed near multi-year highs in volatile trading.
"Heightened tensions in the Middle East, concerns over the UK's fiscal situation, and sticky inflation are all feeding into government bond yields," commented Russ Mould, AJ Bell investment director.
In London, the FTSE 100 index ended down 177.73 points, 1.7%, at 10,428.27. The FTSE 250 fell 396.78 points, 1.6%, to 24,143.21, and the AIM all-share slid 5.36 points, 0.7%, to 782.04.
The Cboe UK 100 ended down 1.7% at 1,035.96, the Cboe UK 250 slid 1.6% at 21,030.85, and the Cboe small companies declined 0.6% at 18,996.59.
In European equity markets on Thursday, the CAC 40 in Paris ended down 1.6%, while the DAX 40 in Frankfurt closed 1.0% lower.
In New York, the Dow Jones Industrial Average was down 0.5% at the time of the closing bell in London. The S&P 500 was 0.2% lower, and the Nasdaq Composite declined 0.1%.
The heavy stock market falls came as bond yields hit multi-decade highs in a roller-coaster trading session. In the US, the sell-off in Treasuries extended into its eighth day.
The yield on the US 10-year Treasury was quoted at 5.30% on Thursday, stretched from 5.28% at the same time on Wednesday. The yield on the US 30-year Treasury was quoted at 5.63%, up from 5.62%.
The 10-year US Treasury earlier hit an intraday high of 5.34%, its highest level since April 2002, while the 30-year bond yield was at 5.66% on Thursday, also around levels not seen in about 24 years.
UBS said the sell-off in bonds, prices move inversely to yields, reflects a combination of cyclical and structural pressures.
"The conflict in the Middle East shows little sign of an imminent resolution, and the price of Brent crude remains around USD 100/barrel. Robust US economic activity and the surge in debt issuance by hyperscalers to fund AI expansion have added to upward pressure in yields, against a backdrop of persistent fiscal deficits," the bank explained.
In the UK, the yield on 10-year gilts stood at 5.40% against 5.43% the day before, after earlier rising above 5.50%. Meanwhile, the yield on 30-year gilts topped 6.0% for the first time since 1998 before cooling to 5.97% by the time of the London equity market close.
AJ Bell's Mould pointed out that the 10-year yield is now trading well above the dividend yield on the FTSE 100 for 2026 of 3.3%.
"Any investor who is nervous about the economic outlook and feels that inflation is not about to break out on the upside could start to look toward fixed income and away from equities as a result, especially if they feel their portfolio needs a little capital protection, given how gilts redeem at par upon maturity," he suggested.
The pound was quoted at USD1.3204 on Thursday, down from USD1.3276 at the same time on Wednesday. Against the euro, sterling firmed to EUR1.1739 from EUR1.1688.
The euro slid to USD1.1238 from USD1.1359. Against the yen, the dollar was trading at JPY157.48, up from JPY157.15.
Bank of England rate setter Catherine Mann said the central bank needs to hike rates to manage inflationary risks and maintain its credibility.
In a speech, Mann, a 'hawkish' member of the BoE's Monetary Policy Committee, said the BoE has to increase rates at some point and cannot just rely on shifts in markets tightening financial conditions for them.
"In my view, real financial conditions are insufficiently tight. The appropriate response therefore is not to rely on risk premia to do the work of policy, but to reduce inflation risk and policy uncertainty through a clearly communicated reaction function and a sufficiently restrictive path for Bank Rate," she argued.
"At some point, we need to follow-through with Bank Rate rises – to maintain credibility, and to avoid policy expectations repricing downwards and inflation expectations repricing further upwards," she added.
Elsewhere, figures showed the UK manufacturing sector saw a growth upturn last month, but supply chains remained "under noticeable stress".
The S&P Global purchasing managers' index edged up to 51.9 points in September, from 51.7 in August, and above the 50-point mark which separates growth from decline. The PMI has been in expansion territory for the past 11 months but was just below the 52.0 flash reading.
On the FTSE 100, the bond market woes weighed on lenders NatWest, down 5.4%, Lloyds, down 4.5%, HSBC, down 4.1% and Barclays, down 4.1%. The sector is also nervously awaiting the budget on October 28, with suggestions the banking surcharge may be increased.
Notably, Sky News reported on Thursday afternoon that UK Chancellor John Healey has summoned the chief executives of lenders including Barclays, HSBC, Lloyds Banking Group, and NatWest Group to a meeting next Tuesday.
Sky noted that this will be the first such in-person meeting that Healey has held with UK bank chiefs since he became chancellor, and comes ahead of his first budget announcement later this month.
Interest rate-sensitive housebuilders were also on the back foot. Barratt Redrow fell 4.4%, Bellway 5.3%, Persimmon 5.1% and Taylor Wimpey 5.5%.
House prices rose 0.8% on-year in September, cooling markedly from a 1.6% hike in August, data from mortgage lender Nationwide showed. It was the weakest rate of growth since December 2025.
RBC Capital Markets equity analyst Anthony Codling said the figures, while not a "disaster", are a "reminder that the market remains a hostage to forces beyond its control: geopolitical tension in the Middle East is driving energy prices higher, keeping inflation nerves alive and mortgage rates sticky."
Among small caps, Light Science Technologies plunged 18% as it warned the full-year outturn will be below previous expectations, reflecting delayed approvals within the Passive Fire Protection division.
The Derbyshire, England-based agricultural lighting and monitoring systems provider now expects to report full-year revenue in the range of GBP9.0 million to GBP9.5 million, which would still be higher than the prior year's GBP8.6 million.
Shore Capital analyst Andrew Saunders, however, had forecast revenue of GBP11.5 million.
Meanwhile, RentGuarantor soared 18% as it forecast revenue, earnings before interest, tax, depreciation and amortisation will be materially above current market expectations.
It put market consensus for revenue at between GBP14 million to GBP15.1 million and Ebitda at GBP4.1 million to GBP4.9 million.
Brent oil was quoted at USD101.71 a barrel in London on Thursday at the time of the equity market close, down from USD103.82 late on Wednesday.
Gold was quoted at USD4,163.35 an ounce, up from USD4,158.28.
The biggest risers on the FTSE 100 were Autotrader Group, up 7.60p at 460.40p, BP, up 7.70p at 557.10p, Airtel Africa, up 4.00p at 304.60p, Tesco, up 6.00p at 474.80p, and Computacenter, up 65.00p at 5,470.00p.
The biggest fallers on the FTSE 100 were Games Workshop Group, down 1,120.00p at 16,870.00p, Lion Finance Group, down 830.00p at 13,540.00p, NatWest Group, down 37.00p at 651.40p, Weir, down 128.00p at 2,574.00p, and Lloyds Banking Group, down 4.80p at 102.10p.
Friday's local corporate calendar has full-year results from pub operator JD Wetherspoon.
Friday's global economic calendar has eurozone inflation figures and the US jobs report, including nonfarm payrolls data.
By Jeremy Cutler, Alliance News reporter
Comments and questions to [email protected]
Copyright 2026 Alliance News Ltd. All Rights Reserved.
Related Shares:
HSBC HoldingsLloydsBarclaysNatwestRentguarantorLight Science TechnologiesBarratt RedrowBellwayPersimmonTaylor WimpeyAuto TraderBPAirtel AfricaTescoComputacenterGames WorkshopBank Of Georgia GroupWeir Group