Britain’s long-term borrowing costs have risen above 6 per cent, the highest level since 1998, as a global sell-off in government bonds has pushed gilt yields to multi-decade highs ahead of the Budget.
The yield on the 30-year gilt climbed as high as 6.029 per cent on October 1, according to LSEG data cited by Reuters, the highest since January 1998 and up six basis points on the day.
The benchmark 10-year yield rose eight basis points to 5.510 per cent, its highest since July 2007. It first passed 5 per cent in March.
Five-year yields, which are more sensitive to the outlook for interest rates and inflation, reached their highest since July 2008.
Both the 30-year and 10-year yields later pared some of the rise.
The move made the UK the first G7 economy to see a 30-year yield at 6 per cent since the eurozone crisis, when Italian debt last traded at that level in 2012.
Bloomberg reported the 30-year rate as high as 6.02 per cent before the increase was partly reversed.
Yields are now well above the levels reached after the September 2022 mini-budget, when the 30-year gilt peaked at about 5 per cent and the Bank of England intervened to buy long-dated debt.
The sell-off was not confined to London. The FTSE 100 closed 1.08 per cent lower and the pan-European Stoxx 600 fell 0.53 per cent, while sterling slipped 0.31 per cent against the dollar to $1.32 (€1.17).
US 10-year Treasury yields rose to 5.34 per cent, their highest since 2002, with Japanese and European government bond yields also higher.
State Street head of macro strategy for Europe, the Middle East and Africa Timothy Graf said the session looked like positions being stopped out rather than a single trigger, while noting that the underlying driver was clear: Central bank rates were going up.
Oil has been a persistent factor.
Brent crude rose 2.2 per cent on the day to just over $100 (€88) a barrel, even as prices steadied on renewed talk of an end to the Iran war.
British yields have risen more sharply than those of most other European governments since the Middle East conflict began in late February, a gap analysts link to Britain’s reliance on natural gas for heating and power generation.
Markets are pricing Bank of England rate rises in November or December, the first since the outbreak of the war, and a further move in February. The Bank held Bank Rate at 3.75 per cent on September 17, with the Monetary Policy Committee splitting six to three and the minority voting for an immediate rise to 4 per cent. Consumer price inflation stood at 3.1 per cent in the 12 months to August.
Rabobank head of G10 foreign-exchange strategy Jane Foley said the market was priced for “quite a lot” of increases, but added that she did not think the Bank wanted to raise rates given the hit to household budgets from higher food and energy prices.
The rise tightens the arithmetic for Chancellor John Healey before his first Budget on October 28, which is expected to include tax increases.
Headroom against the government’s fiscal rules is estimated to have fallen by about £10 billion (€11.7 billion), from just under £24 billion (€28 billion), because of higher yields since the war began.
The Office for Budget Responsibility said in July that debt-interest spending had more than doubled as a share of GDP since just before the pandemic and, at £110 billion (€129 billion) in 2025-2026, was the third-largest area of public spending after health and welfare.
The Debt Management Office plans to sell about £250 billion (€293 billion) of gilts this financial year.
On September 8 it priced a £4 billion (€4.7 billion) sale of 30-year debt at 5.82 per cent, the highest interest rate on any gilt issuance since the office was created in 1998.
The UK’s 10-year borrowing costs remain the highest in the G7.
Wealth Club chief investment strategist Susannah Streeter said: “The bond market is adding to the pressure cooker ahead of the UK Budget.
“With debt already high and interest payments eating up a hefty chunk of public finances, sustained yields at these levels could further squeeze the Chancellor’s wiggle room when he sets out his spending plans.”
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