FTSE 100 drops to three-month low as surging yields hit risk appetite

By Anand Gopal R

Oct 1 (Reuters) - UK's FTSE 100 fell to a three-month low on Thursday with banks leading declines as a sharp rise in global bond yields to fresh multi-decade highs fanned inflation concerns and dampened investor sentiment.

The blue-chip FTSE 100 index closed down 1.68% at 10,428.7 points, marking its fourth straight day of losses and its biggest one-day decline since May 15, while the midcap FTSE 250 slipped 1.62%.

• The yield on the British 30-year gilt surged to its highest since early 1998 at 5.9352%. The benchmark 10-year gilt yield climbed to 5.4033%, its highest since 2007. [GB/]

• Financials were the biggest drag on the FTSE 100. Banks fell 4.2% to their lowest in more than three months as jitters mounted ahead of the budget later this month.

• Banking heavyweights HSBC and Barclays dropped about 4% each, while NatWest fell 5.4%.

• Cyclical stocks came under stress as higher oil prices and surging yields reinforced worries that persistent inflation could keep interest rates higher and weigh on economic growth.

• The selloff "is much more to do as well with concerns over the fiscal outlook of the UK as we head towards the budget later this month," Fiona Cincotta, senior market analyst at StoneX, said.

• Brent benchmark oil prices rose by $3 after China suspended oil products exports. [O/R]

• Consumer-focused personal care stocks and pharmaceuticals were among other laggards.

• Traders are currently pricing in a 85% chance that the Bank of England will increase borrowing costs at its November meeting, according to data compiled by LSEG.

• BoE interest rate-setter Catherine Mann said the central bank's handling of the Middle East war shock raised UK borrowing costs, offering little comfort to officials.

• On the data front, British house prices posted their weakest annual growth since December 2025, underscoring the impact of higher borrowing costs.

• Homebuilder stocks declined 4.9%.

• Among other movers, construction materials company Breedon Group slid 3.4% after naming James Brotherton to succeed Rob Wood as group CEO.

(Reporting by Anand Gopal and Avinash P in Bengaluru; Editing by Sahal Muhammed and Andrew Heavens)