U.K. borrowing costs rose on Tuesday (January 7) following an auction of 30-year Treasury gilts, which saw yields on the long-term bonds reach their highest point in nearly three decades.
By 2:02 p.m. London time, the yield on the 30-year gilt — a U.K. government bond — had increased by 3 basis points to 5.212%, marking its highest level since the late 1990s.
This increase came after the U.K. Debt Management Office auctioned $2.83 billion worth of 30-year gilts with a 4.375% coupon, yielding a minimum of 5.194%, reflecting a discount on the bond’s face value.
The yield on 20-year gilts also rose by 3 basis points, reaching 5.153%.
Shorter-term gilts saw similar increases, with the 10-year gilt yield up 3 basis points at 4.641%, while yields on the 2-year and 5-year gilts also saw slight upticks in the early afternoon.
This rise follows a fresh wave of bond sales and investor concerns over the threat of stagflation. Additionally, rates have remained elevated due to forecasts that interest rate reductions in the U.K. will occur more slowly than originally anticipated.
On a global scale, government bonds have faced a broader sell-off in recent months, driven by concerns that former President Donald Trump could implement a tariff policy that could lead to inflationary pressures on many international economies.
Economic Contraction And Inflation Heighten Concerns
Meanwhile, the U.K. is grappling with a range of challenges, as its economy unexpectedly contracted by 0.1% in October. Inflation remains above the Bank of England’s 2% target, rising to 2.6% in November.
Politically, there are growing concerns about the Labour government’s fiscal policies, including plans to raise $50.1 billion through a series of new and controversial measures. These include an increase in employer National Insurance contributions — a tax on earnings — sparking warnings from businesses about their reluctance to hire additional workers.
The British Chambers of Commerce reported on Monday that business confidence has hit its lowest point since the U.K.’s 2022 “mini-budget” crisis, with many companies expressing concerns about covering the added tax burden on top of rising wage costs.
