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View towards the Royal Exchange and the City of London where the glass architecture of the 22 Bishopsgate tower disappears into the fog on November 6, 2024 in London, United Kingdom.
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UK borrowing costs edged higher on Tuesday after an auction of 30-year Treasury gilts pushed long-term bond yields to their highest level in nearly three decades .
At 2:02pm London time, the yield on the 30-year gilt – a British government bond – climbed 3 basis points to 5.212% – its highest level since the late 1990s.
The move comes after the UK’s Debt Management Office sold at auction £2.25 billion ($2.83 billion) of gilts with a maturity of 30 years and a coupon of 4.375% at a minimum yield of 5.194%, which represents a discount on the face value of the bond.
The yield on 20-year gilts added 3 basis points to trade at 5.153%.
Yields on gilts with shorter maturities also moved higher on Tuesday.
UK 10-year yields gained 3 basis points to trade at 4.641%, while yields on 2- and 5-year gilts were slightly higher in early afternoon trading.
Concerns of “stagflation”.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, on Tuesday said that the British bond market was affected by uncertainty at home and abroad.
Traders were cautious, he told CNBC in emailed comments, that US President-elect Donald Trump’s tariff plan could trigger inflation in America and abroad if pressure on the ‘raise is placed on the dollar or the interest rates of the United States and consumer prices are pushed higher.
The United Kingdom is facing its own set of problems, with the British economy unexpected contraction of 0.1% in October. Inflation is still above the 2% target of the Bank of England, then higher edge to 2.6% in November.
On the political front, there are concerns about the Labor government’s fiscal policies and plans raise taxes by £40 billion ($50.1 billion) through a series of new and controversial policies. These include a rise in employers’ National Insurance payments – a tax on earnings – which prompted warnings from companies that will be less likely to take on new workers.
On Monday, the British Chamber of Commerce said business confidence had fallen to its lowest level since the 2022 UK “mini-budget” crisiswith many businesses citing concerns about covering the additional tax costs above the increase in wages.
“In the UK, there is particular concern about stagflation taking hold, as inflation has risen and wage growth is still warm, while the economy has stagnated,” Streeter told CNBC. Tuesday. “Appetite to buy long-term UK government debt appears to have fallen amid this uncertainty.”
“Gilt yields have risen sharply in recent weeks, which is bad news for the government as it raises fears about the state of the public finances,” Richard Carter, head of fixed interest at Quilter Cheviot, said in a note to customers on Tuesday.
“The Bank of England remains cautious about overly aggressive interest rates, and the tepid demand from investors at the latest gilt sale underlines the uncertainty in the market.”
He added that gilt yields nevertheless presented an “attractive opportunity for long-term investors”, thanks to being well above expected inflation levels.
“For investors with a lower risk appetite, short-dated gilts still offer a promising avenue and are less sensitive to market fluctuations,” he said.
Correction: This article has been updated to accurately reflect that the gilts sold at auction had a coupon of 4.375%.
