Long-term government borrowing costs in the UK have surged to their highest point in 28 years, putting increased pressure on Andy Burnham’s government as it prepares for next month’s Budget.
This rise in costs occurred during a broad global sell-off of bonds, fueled by concerns over rising oil prices and general inflation uncertainty. The yield on 30-year UK government bonds, known as gilts, climbed by 10 basis points to 5.89% on Tuesday morning. This level has not been seen since March 1998.
Additionally, the yield on the benchmark 10-year gilt rose to 5.223%, its highest rate since June 2008, during the financial crisis. Higher gilt yields mean it will cost the government more to borrow money.
Globally, Japan’s 10-year bond yield also reached its highest since 1996, surpassing 3%. Analysts suggest this worldwide increase in yields is partly due to escalating tensions in the Middle East and fears that inflation could accelerate, prompting central banks to raise interest rates.
Oliver Faizallah, head of fixed income research at Raymond James, commented that while high bond yields are justified by current inflation and fiscal risks, the market may have already priced in these concerns. He noted that current yields suggest the market expects prolonged inflation, further interest rate hikes, and increased government spending funded by more bond sales.
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