European bond yields at multi-year highs on fiscal jitters, stocks stumble

By Alun John and Ankur Banerjee

LONDON/SINGAPORE (Reuters) -Long-dated bond yields in Britain and France hit their highest in over a decade on Tuesday as investors grow increasingly worried about the state of finances in countries around the world, while gold touched a fresh record high.

As markets suffered a sharp back-to-school shock, the Japanese yen also tumbled after a close aide to Prime Minister Shigeru Ishiba said on Tuesday he would resign from his post. Later in the day, U.S. business activity data will be the first in a raft of important economic figures to come this week.

Britain's 30-year bond yield rose nearly 6 basis points to 5.697%, its highest since 1998, while France's rose a similar amount to 4.513%, its highest since 2009.

Bond yields move inversely to prices, and yields especially on super-long-dated 30-year bonds have been soaring around the world, with investors concerned about the scale of debt in countries from Japan to the United States.

But Britain and France are in particular focus.

French Prime Minister Francois Bayrou looks set to lose a confidence vote next week as opposition parties balk at his cuts to government spending, while British finance minister Rachel Reeves is expected to raise taxes in her autumn budget in order to remain in line with her fiscal targets.

Sterling also tumbled sharply, down over 1% on the dollar at $1.3402, and at its weakest in nearly a month on the euro.

"Thirty-year yields at their highest in almost three decades are not a good look for (Britain's) Labour government, and underscore that there is little fiscal or economic credibility left," said Neil Wilson, UK investor strategist at Saxo Bank.

"But it wasn’t just the UK in isolation here ... the thing to consider here is that global long-end bonds are in trouble as no one wants to wear duration - this is seeing gold breach a fresh record."

Gold rose as high as $3,508.5 an ounce early on Tuesday, its highest on record, while silver rose to a 14-year high.

Both then retreated in European trading hit by a rebound in the dollar, as investors tried to get out of sterling, yen and euros all at the same time.

The dollar was last up 0.86% on the yen, at 148.47 after the Japanese ruling party's secretary general Hiroshi Moriyama, a close aide to the prime minister, said he intends to resign to take responsibility for the party's defeat in the July 20 upper house election.

All that hurt stocks, and Europe's broad Stoxx 600 share benchmark was down 0.6%, with rate-sensitive real estate stocks down nearly 2%.

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U.S. share futures fell 0.5%

BUSY WEEK FOR US DATA

Still to come is U.S. business activity data, the first instalment in a packed week of economic figures which will either underscore expectations the Federal Reserve will cut rates later this month, or put them into question.

The most important of the week's data is Friday's U.S. nonfarm payrolls report, which will be preceded by data on job openings and private payrolls, providing investors and the Fed a clearer picture of the labour market that has become the centre of policy debate.

Markets widely expect the Fed to lower interest rates later this month, pricing in an 89% chance of a 25-basis-point cut.

Oil prices rose on Tuesday as concerns about supply disruptions grew amid an escalation of the conflict between Russia and Ukraine. Brent crude rose 1.5% to $69.17 a barrel. [O/R]

(Reporting by Alun John in London and Ankur Banerjee in Singapore; editing by Jacqueline Wong and Mark Heinrich)