The FTSE 100 Index continued its downtrend in the past few days, moving from the year-to-date high of £9,358 to a low of £9,160. This crash may continue as the UK bond yield continues soaring to their highest point in a while.
UK bond yields are soaring
The FTSE 100 Index pulled back as UK’s bond yields surged. The yield of the 10-year government bonds jumped to 4.80 %, its highest level since May, up from the year-to-date low of 4.381%.
Similarly, the longer-term bond yields rose to 5.688%, the highest level since 1998. The yield has been on a constant uptrend after bottoming at 0.386% in 2019.
The stock market tends to underperform when government bond yields are in a strong uptrend. In theory, this often leads to rotation from equities to high-yielding bonds.
UK bonds are surging because of the rising expectation that the Bank of England (BoE) will maintain interest rates steady in the coming meetings as inflation steadies. The most recent data showed that the headline Consumer Price Index (CPI) rose to 3.6% in July, moving further away from the target of 2.0%.
The yields are also soaring as the market price in higher by the Keir Starmer administration, which faces a multi-billion-pound hole.
One of the potential tax cut could be a windfall tax on banks, which a lobby argued would raise billions of dollars and leave some money to spare for the government.
The 30-year gilt rate also jumped as demand for long-dated bonds continued waning globally. Consequently, the GBP/USD pair slumped to 1.3400, its lowest level since August 7 and 3% below the highest point this year.
Top gainers and laggards in the Footsie
Most interest rate-exposed companies were among the top laggards in the FTSE 100 Index. Taylor Wimpey, a major player in the housebuilding industry, dropped by 3% to 93.15p, down by over 42% from its highest point this year.
Marks and Spencer, a top UK retailer, plunged to 332p, down by almost 20% from the year-to-date high. Other top laggards in the index were companies like Land Securities, United Utilities, Sainsbury, Barratt Redrow, and Persimmon, all of which plunged by over 2.4%.
On the other hand, Fresnillo’s stock price rose by 0.75% as gold and silver prices continued their upward trajectory. Unilever, Scottish Mortgage, GSK, BP, and Antofagasta stocks were among the top gainers in the index.
FTSE 100 Index analysis
FTSE 100 chart | Source: TradingView
The daily timeframe shows that the FTSE 100 Index continued its strong downtrend today, moving to its lowest point in weeks. It slumped from a high of £9,355 to £9,145.
The Relative Strength Index (RSI) has moved from the overbought level of 72 to 49 today. Also, the two lines of the Percentage Price Oscillator have formed a bearish crossover pattern and are pointing downwards.
These oscillators are yet to get to their pivotal levels, meaning that the index has more downside to go in the coming weeks. If this happens, the nxt point to watch will be at £9,000. A move above the year-to-date high at £9,354 will invalidate the bearish outlook.
Read more: FTSE 100 Index top gainers and losers of 2025 revealed
The post FTSE 100 Index forecast as the UK Gilt market implodes appeared first on Invezz