What does the chart show?
The chart shows the correlation between UK Gilt yields and UK natural gas prices.
Why this is important
One of the more notable features of the UK rates market over the past year has been the close relationship between gilt yields and LNG prices. As a major importer of natural gas, the UK remains particularly sensitive to shifts in global energy markets, with changes in LNG prices feeding directly into inflation expectations and, by extension, monetary policy expectations. The chart highlights this relationship, with movements in 5-year gilt yields closely tracking fluctuations in UK natural gas futures. While the recent rise in LNG prices has contributed to firmer inflation expectations and higher gilt yields, the same relationship suggests meaningful upside potential for gilts should energy prices reverse course. A decline in LNG prices would help alleviate inflation pressures, reinforce the disinflation trend and support the Bank of England's current on-hold stance. With domestic growth remaining subdued, lower energy costs would reduce the need for further policy tightening and could create a more supportive backdrop for UK gilts.
Markets grappled with rising bond yields, higher energy prices and renewed rate-hike expectations as geopolitical tensions intensified globally.
-
Markets focused on the Federal Reserve's September meeting after stronger-than-expected labour market data and persistent inflation concerns increased the possibility of another rate rise. Treasury yields and the US dollar remained volatile as investors reassessed policy expectations.
-
Political attention intensified ahead of November's midterm elections, with President Trump continuing to dominate the national agenda and shaping both economic and electoral debates.
-
Defence policy came under scrutiny following the resignation of Army Secretary Dan Driscoll, highlighting concerns around Pentagon leadership changes and military readiness amid tensions with Iran.
-
Investors monitored signs of slowing consumer activity alongside continued resilience in broader economic growth, with affordability and inflation remaining key voter concerns.
-
The UK economy continued to show resilience, with recent data indicating stronger-than-expected second-quarter growth despite ongoing cost pressures on businesses and households.
-
Activity in the services sector expanded for a second consecutive month, while rising prices reinforced concerns that inflation pressures may persist.
-
Parliament returned from summer recess with Prime Minister Andy Burnham facing key decisions on energy policy, public finances, immigration and welfare reform.
-
Fiscal sustainability remained a major market theme as investors continued to monitor government borrowing, gilt yields and public spending plans.
-
Expectations grew that the European Central Bank would deliver another 25bp rate increase amid renewed energy-price pressures and inflation concerns.
-
European governments continued preparations for key Council meetings covering economic coordination, competitiveness, security and Ukraine-related issues.
-
The EU's Entry/Exit System implementation faced further delays, with several member states struggling to deploy border-control technology effectively.
-
Political attention centred on regional elections in Germany and wider debates around immigration, Ukraine support and the rise of populist parties.
-
The BRICS summit in New Delhi moved into focus, with emerging-market leaders preparing discussions on trade, investment and geopolitical cooperation.
-
Beijing announced a major financial-sector support package, including approximately $54bn of capital injections into state-owned banks and insurers to strengthen lending capacity and financial stability.
-
Markets continued to increase expectations of another Bank of Japan rate hike, supported by persistent inflation and yen weakness.
-
Ukraine remained a key international issue, with renewed diplomatic efforts involving both US and European stakeholders.
