UK government borrowing costs have climbed to their highest levels in decades, with the yield on 30-year gilts reaching 5.925% as global bond markets came under renewed pressure.
The 30-year yield rose to its highest level since 1998, while the 20-year gilt yield reached 5.890%, also a 28-year high. The benchmark 10-year yield climbed to 5.348%, its highest level since July 2007.
The move increases pressure on Chancellor John Healey ahead of his first Budget, as higher gilt yields feed through into the cost of financing government debt.
Global bond sell-off hits UK debt
The latest rise in UK yields was driven in large part by movements in global bond markets rather than a UK-specific shock.
Reuters reported that stronger-than-expected US labour-market data increased expectations that the US Federal Reserve could raise interest rates, pushing US Treasury yields higher and dragging other sovereign bond markets with them.
Oil prices have also risen sharply, adding to fears that inflation could remain higher for longer and forcing investors to reassess the outlook for interest rates.
That combination has pushed borrowing costs higher across several major economies, including the United Kingdom.
30-year yield reaches 5.925%
The yield on the UK's 30-year gilt rose as high as 5.925% on Thursday, the highest level since 1998.
The 20-year yield reached 5.890%, while the 10-year gilt yield climbed to 5.348%, its highest since July 2007.
Shorter-dated gilts also moved higher, with two-year and five-year yields reaching their highest levels since 2023.
Bond yields move inversely to prices, meaning rising yields reflect falling bond prices and higher borrowing costs for the Government when it issues new debt.
Pressure builds ahead of Healey's Budget
The rise presents an additional challenge for Chancellor John Healey ahead of his Budget on 28 October.
Higher borrowing costs can increase the amount the Government must spend servicing its debt, reducing the room available for tax cuts or additional spending under the fiscal rules.
The market move follows a £4.25 billion syndicated sale of 30-year government debt earlier this week.
The Debt Management Office said the reopening of the 5⅜% Treasury Gilt 2056 was priced at a gross redemption yield of 5.8168%, the highest comparable syndication yield since the DMO was established in 1998.
Despite the high yield, demand for the sale was strong, with the DMO saying the issue was well received by investors and that around 71% of the allocation was taken by the UK domestic market.
Not solely a verdict on UK finances
While the increase in gilt yields adds to the Government's fiscal difficulties, the latest move should not be read solely as a judgment on UK economic policy.
Bond yields have been rising internationally as investors respond to higher energy prices, persistent inflation risks and changing expectations for central-bank interest rates.
The scale of the move is nevertheless politically significant because the Government is already facing difficult choices over tax, spending and borrowing ahead of the autumn Budget.
If borrowing costs remain elevated, the Chancellor could face a tighter fiscal position than previously expected.