The surge in government bond yields is not just about the UK economy

This report is from today's CNBC Daily Open, the international markets newsletter. CNBC Daily Open keeps investors informed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

All eyes on the US jobs report
The US non-farm payrolls report for December is scheduled to be released later on Friday. Economists expect this to appear Increased 155,000 job opportunitiesdown from 227,000 in November, and the unemployment rate will remain unchanged at 4.2%. Analysts from Goldman Sachs and CitigroupHowever, I believe that both numbers will be worse than consensus expectations.

US markets are dark, European markets are closing higher
US markets closed their doors on Thursday in honor of former US President Jimmy Carter He died in late December at the age of 100. Asia Pacific markets Dropped on Friday. Japan's Nikkei 225 index fell by about 1%, leading to losses in the region, as data showed household spending in November falling less than expected. China's CSI 300 index lost 1.25% after the People's Bank of China Purchase outstanding bonds.

All-time lows for Chinese 10-year bond yields
Chinese sovereign bonds have seen a strong rise since December, with 10-year yields also rising It fell to all-time lows this month After declining by about 34 basis points, according to data from the London Stock Exchange. Demand for loans Consumers and businesses in China performed poorly, prompting banks to buy government bonds, putting pressure on yields.

Fed governor believes December cut should be 'last step'
Michelle Bowman, Governor of the US Federal Reserve, said that the Fed Cut interest rates in December It should be “the last step in the policy recalibration phase.” This indicates that Bowman, a voting member of the Federal Open Market Committee, You may oppose further cuts this year. Other Fed officials speaking this week were more optimistic about cutting interest rates.

(PRO) UK small and midcap stocks to buy
There may be some questions about The strength of the UK economy now. But Barclays still sees investment opportunities in the country, naming three small- and mid-cap stocks it is currently betting on – with two of them Implied rise above 40%.

The UK government's long-term borrowing costs are currently at… Nearly three decades high. As of 6am London time, the yield on… 30 gilded years It reached 5.359%, its highest level since 1998.

Government bond yields – a fancy British term for government bonds such as US Treasuries – rose after the UK Debt Management Office report was released on Tuesday. Sold at auction Bonds worth £2.25 billion ($2.83 billion) with a maturity of 30 years.

Typically, bond yields rise in response to rising interest rates, which remain high when inflation remains stubbornly above most central banks' 2% target.

In the UK, this is a problem. headline inflation It rose to 2.6% in NovemberOn an annual basis, this is the second monthly increase in a row.

Worse still, in October, UK GDP Shrinkage 0.1% On a monthly basis, raising the specter of stagflation – when an economy suffers from high rates of inflation and a stagnant economy.

Labor government plans Raising taxes and dramatically increasing borrowing have also put pressure on government bond prices, which move in the opposite direction to yields.

Also consider currency movements. Higher government bond yields often translate into a stronger currency, because the yields attract global investors who drive demand higher.

However, the British pound fell against the US dollar even as government bond yields rose.

Together, these factors paint a picture of a weak economy, so it seems natural that investors would demand higher returns if they loaned the UK government money.

But we should not exaggerate the situation. Consider the Liz Truss debacle.”Small budget” for 2022, causing a huge uproar Sell ​​in gold And a jump in yields within days (yields usually move at a glacial pace).

During that period, 30-year US Treasury bond yield It was about 3.5%. On Friday, it was at 4.9%, meaning government bonds are keeping pace with Treasuries rather than running amok. In other words, the recent rise in government bond yields is not necessarily due to turmoil in the UK, as bond yields, interest rates and inflation fears remain high globally.

It's always scary when a country's financial markets experience turmoil. When others face the same problems, perhaps this makes the scenario a little easier to bear.

— CNBC's Chloe Taylor, Jenny Reid, Karen Gilchrist and Elliot Smith contributed to this report.