FTSE 100 falls on bond yields were the defining pressure on Thursday, dragging London’s blue-chip index down 25.27 points, or 0.2%, to close at 10,679.99, as investors tracked a volatile mix of rising government borrowing costs, a sharp rebound in oil prices and a closely watched summit between US President Donald Trump and Chinese President Xi Jinping in Washington.
The FTSE 250 dropped 207.26 points, or 0.9%, to 24,154.32, and the AIM all-share fell 8.48 points, or 1.1%, to 784.96. In Europe, the CAC 40 in Paris lost 0.5% and the DAX 40 in Frankfurt declined 0.6%. In New York, the Dow Jones Industrial Average was down 0.7% at London’s closing bell, with the S&P 500 off 0.5% and the Nasdaq Composite shedding 0.8%.
Bond yields and oil prices squeeze market optimism
Government bond yields, which move inversely to prices, were the chief culprit behind the cautious mood. The yield on the US 10-year Treasury rose to 5.11%, up from 5.08%, while the US 30-year Treasury yield climbed to 5.45% from 5.38% the previous day.
Neil Wilson, investor strategist at Saxo UK, said: ‘Bond yields are blowing out again partly because the US economy is booming.’ That view was backed by fresh data: S&P Global’s flash US composite PMI (Purchasing Managers’ Index) output index improved to 58.4 in September from 56 in August, a 62-month high that beat the MNI-cited consensus of 55.3. A PMI reading above 50 signals expansion in business activity.
Deutsche Bank’s Jim Reid said the strong data played into the narrative of ‘resilient growth, which in turn would enable the Fed to keep hiking rates to deal with inflation’. Trade Nation analyst David Morrison noted that market expectations for a 25-basis-point rate rise by the US Federal Reserve next month had risen to around 75%, up from 55% the previous week.
Kathleen Brooks, research director at XTB, said: ‘It is rare to get movements this volatile in sovereign bond markets, which is another sign that sovereign debt is going through an uncomfortable adjustment period.’ She pointed to a combination of rising government debt loads and deficits, resilient economic growth and rising inflation risks, adding: ‘These things together are anathema to the bond market and it is no surprise that yields are rising.’
Oil added to the pressure. Brent crude was quoted at $107.25 a barrel in London on Thursday at the equity market close, up from $102.74 the evening before. The higher oil price lifted BP and Shell by 2.6% and 1.7% respectively on the FTSE 100, with Ithaca Energy gaining 2.0%. Gold, meanwhile, slipped to $4,252.84 an ounce from $4,283.94.
FTSE 100 falls on bond yields even as Trump and Xi extend trade truce
Some optimism did filter through from Washington, where Trump and Xi held a summit that produced an agreement to extend their trade truce by two months. According to China Briefing, that extension pushes the deadline back to 10 January 2027. The two countries said they remain at odds over Beijing’s diplomatic and economic support for Iran.
The visit opened with a gesture that was unusual by diplomatic standards. According to AP News, Trump met Xi with a rare planeside greeting at Joint Base Andrews, before the two leaders held talks at the White House.
‘Working together, President Xi and I have made tremendous strides on the issues facing our two countries,’ Trump said. Xi took a more measured tone: ‘We have both the capability and responsibility to develop and manage AI for good and ensure that the development of AI is always under human control.’ He added that the two countries had a ‘historic responsibility of advancing human development and progress’ and should ‘strengthen communication’.
Brooks at XTB said ‘there is no clear direction for markets’ and that until questions over bond markets, the situation in Iran and oil supplies through the Strait of Hormuz are resolved, ‘volatility will continue to dominate, especially in the commodity and bond markets’.
In the UK, the Financial Times reported that the Treasury is considering accepting a smaller fiscal buffer at next month’s budget. The paper said the Treasury and Number 10 are discussing whether Chancellor John Healey could target less headroom against the government’s fiscal rules than the £23.6 billion forecast by the Office for Budget Responsibility in March. Gilt investors surveyed by the FT suggested the buffer could fall to around £14 billion without triggering a significant market sell-off, though some argued that headroom below £20 billion could undermine confidence.
On the FTSE 250, Raspberry Pi was the standout mover, rising 20% after saying it was well placed for further rapid growth following a record first-half performance. The Cambridge-based maker of low-cost computer boards said it expects full-year EBITDA (earnings before interest, taxes, depreciation and amortisation) to be ahead of market consensus. Vistry shares ended down 3.1% as chief executive Adam Daniels outlined a turnaround plan targeting around 12,000 completions per year over the medium term and a consolidation from 25 regions to 12 larger operating regions. Completions totalled 15,658 in 2025, down from 17,225 in 2024. Daniels ruled out any equity raise. Friday’s corporate calendar includes half-year results from Malibu Life Holdings, with global economic data including eurozone money supply figures, German and UK consumer confidence, US durable goods orders and the Michigan consumer sentiment index also due.
