A view looking towards the Royal Exchange and in the City of London where the glass architecture of 22 Bishopsgate Tower disappears into the fog on November 6, 2024 in London, United Kingdom.
Mike Kemp | In pictures | Getty Images
UK borrowing costs rose on Tuesday, after an auction of 30-year government bonds pushed long-term bond yields to their highest levels in nearly three decades.
By 14:02 London time, the yield on the 30-year Gilt — the UK government bond — had climbed 3 basis points to 5.212% — the highest level since the late 1990s.
The move follows the UK’s Debt Management Office sold at auction £2.25 billion ($2.83 billion) worth of 30-year Gilts, with an initial offer yield of 4.375%.
The yield on 20-year gilts added 3 basis points to 5.153%.
Yields on shorter-dated gilts also rose on Tuesday.
UK 10-year gilt yields gained 3 basis points to trade at 4.641%, while 2- and 5-year gilt yields were slightly higher in the early afternoon.
Concerns about ‘stagflation’
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said on Tuesday that the UK bond market was affected by uncertainty both at home and abroad.
Traders were wary, she told CNBC of the emailed comments, that U.S. President-elect Donald Trump’s tariff plan could prove inflationary in America and beyond if the dollar comes under pressure or U.S. interest rates and consumer prices rise. push up.
The UK is facing its own spate of problems, with the British economy unexpected decrease of 0.1% in October. After that, inflation is also moving above the Bank of England’s 2% target. edge more to 2.6% in November.
On the political front, there are still concerns about the fiscal policy and plans of the Labor government raise taxes by £40 billion ($50.1 billion) through a series of new and controversial policies. This includes a rise in employers’ national insurance payments — payroll tax — which has fueled it warnings from companies that are less likely to hire new workers.
On Monday, the British Chamber of Commerce said that business confidence had fallen to its lowest level since The UK’s “mini-budget” crisis in 2022with many companies citing concerns about covering the additional tax costs on top of rising wages.
“There’s a particular concern in the U.K. about picking up stagflation, given that inflation is rising and wage growth is still hot, while the economy is stagnant,” Streeter told CNBC on Tuesday. “Appetite to buy long-term UK government debt appears to have waned amid this uncertainty.”
“Gilding yields have risen sharply in recent weeks, which is bad news for the government as it fuels fears about the health of the public finances,” Richard Carter, head of fixed interest at Quilter Cheviot, said in a note to clients on Tuesday.
“The Bank of England remains cautious about cutting interest rates too aggressively, and tepid investor demand in the latest gold sell-off underscores uncertainty in the market.”
He added that gilt yields still represent an “attractive opportunity for long-term investors”, thanks to being well above expected levels of inflation.
“For investors with a lower risk appetite, short-duration gilts still offer a promising opportunity and are less sensitive to market fluctuations,” he said.
