Nordea Asset Management's senior macro strategist Sebastien Galy comments:

"Bond market turmoil is shaking equity markets as investors assess the future path of growth and inflation. Investors have changed their approach, no longer looking to position for the end of 2023 and beyond, and instead shortening their view to address risk management for the next few months. The latest surprising source of risk comes from the bond market and particularly British Gilts.

In the UK, the proposed large expansion in the government’s budget through unfunded tax cuts has shaken confidence in Gilts and the Pound. Ten-year Gilts, which had been rising for weeks, increased by 40 basis points on the budget announcement as the Pound plunged sharply lower.

The fear is that contagion from one bond market will impact others as investors lose confidence in their ability to anticipate the terminal rate of this rate hiking cycle from the Fed to the ECB. Indeed, inflation in the Eurozone in September was higher than expected at 10% with core rising more than expected at 4.8%. It is still tempting to position for the eventual rate cut cycle - but recent events prove that it's dangerous to go in too early."