FTSE 100 slides as U.S. bond selloff spooks investors


U.K. stocks dropped for the first time in three days on Tuesday, tracking an equity selloff in the U.S. and Asia that came as investors got nervous about a rally in U.S. bond yields.

What are markets doing?

The FTSE 100 index

UKX, -0.44%

 dropped 0.2% to 7,653.36, erasing a 0.1% gain from Monday.

The pound

GBPUSD, -0.2842%

 slid to $1.3991 from $1.4075 late Monday in New York.

What is driving the market?

The losses in London came after the Dow Jones Industrial Average

DJIA, -0.67%

 and the S&P 500 index

SPX, -0.67%

 on Monday suffered their worst day of the year, as the appetite for equities disappeared on the back of a rally in yields. Prices fall as yields rise.

The yield on 10-year U.S. Treasury notes

TMUBMUSD10Y, +0.07%

 rose to its highest level since April 2014 on Monday and continued higher on Tuesday to 2.71%. In the U.K., 10-year benchmark yields

TMBMKGB-10Y, -1.11%

 also rose on Monday, but slipped 1 basis point to 1.45% on Monday.

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What are strategists saying?

“Shock and horror are flashing on traders’ dashboard as they start the day — thanks to the U.S., where we witnessed the worst bond selloff for 2018. Rising bond yield is a ticking time bomb,” said Naeem Aslam, chief market analyst at Think Markets UK.

“Expectations around higher inflation, stimulated by Trump’s tax incentive, need to be factored in. The markets have decided to wake up to this idea now because firms will be increasing wages and bonuses,” Aslam said in a note.

What else is new?

Brexit was back in the headlines on Tuesday, after a BuzzFeed report that a leaked document on the government’s analysis of the European Union divorce shows the U.K. will be significantly worse off outside the EU, regardless of what deal is struck.

At 3:35 p.m. London time, or 10:35 a.m. Eastern Time, Bank of England Governor Mark Carney will speak before the House of Lords Economic Affairs Committee.

Which stocks are in focus?

Shares of Anglo American PLC

AAL, -2.59%

 fell 2.7% even as its majority-owned De Beers Group said diamond sales jumped in the first sales cycle of 2018.

In Ireland, shares of Ryanair Holdings PLC

RY4C, -0.12%

 fell 1% after the discount airline and the British Airline Pilots’ Association said they have struck an agreement for the representation of cockpit crew. The deal is seen as a major breakthrough in Ryanair’s talks with labor groups.

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