Record gas prices hit bonds as investors fear wider damage

European pure gasoline costs shot to report highs on Tuesday, dragging down bond markets in an indication that traders had been anticipating wider financial harm.

European gasoline contracts for supply in November leapt 23 per cent to €117.50 a megawatt hour, up from simply €18 six months in the past, on the prospect of provide shortages over winter. UK costs additionally soared, breaching £3 a therm for the primary time, with costs tripling prior to now two months.

The newest value positive aspects imply gasoline within the UK and Europe is buying and selling at greater than $200 a barrel of oil equal — or nearly thrice the value of crude — with inflationary results threatening to ripple by means of economies reliant on gasoline for heating and energy era.

Surging vitality costs, which stem from a fast improve in vitality demand since lockdowns eased in addition to authorities strikes to chop reliance on extremely polluting coal, have put stress on governments and policymakers in Europe. Spain, Italy, France and Greece have already agreed subsidies to guard households from increased prices.

Ursula von der Leyen, head of the European Fee, mentioned Brussels would discover organising frequent storage amenities for gasoline, warning concerning the continent’s heavy dependence on Russia for imports, whereas praising Norway for taking steps to boost manufacturing.

“We’re very grateful Norway is stepping up however this doesn’t appear to be the case for Russia,” von der Leyen mentioned.

Russia, the most important provider of pure gasoline to Europe, has restricted pipeline exports to long-term contracts, regardless of clear indicators merchants need extra spot market gross sales to assist fill storage amenities.

Russian president Vladimir Putin described the scenario in Europe as one in all “hysteria and confusion”, blaming tight provides on under-investment in fossil fuels as economies attempt to pivot in the direction of renewable vitality.

Ukraine and different japanese European nations have accused the Kremlin of making an attempt to “weaponise” pure gasoline provides to safe fast approval to start out up its Nord Stream 2 pipeline, which might carry Russian pure gasoline to Germany by means of the Baltic Sea, bypassing Ukraine.

Line chart of Government bond yields (%) showing Yield on 10-year gilts at highest level in more than 2 years

The gasoline value surge has added gasoline to a current drop in bond costs, notably within the UK the place considerations concerning the rising value of vitality have been felt most acutely. Merchants are pricing in a peak within the British client value inflation fee at practically 6 per cent by subsequent April.

UK 10-year gilt yields surged to 1.09 per cent, the best since Might 2019. Debt within the eurozone and the US additionally weakened, with 10-year US Treasury yields climbing near final week’s three-month excessive, as traders grew to become more and more involved about inflation.

“Bond markets are buying and selling off gasoline costs,” mentioned Mike Riddell, a portfolio supervisor at Allianz World Buyers. “The rise is so dramatic that it’s feeding these considerations about stagflation.”

Report wholesale costs have additionally led to the collapse of 10 retail vitality suppliers within the UK for the reason that begin of August, requiring thousands and thousands of shoppers to be transferred to different firms.

The price of supplying the typical family within the UK with gasoline and electrical energy for a 12 months has soared to greater than £1,800, far above the £1,277 value cap.


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