UK 10-year borrowing costs rise to highest since 2007
TLT•UK 10-year gilt yields reached 5.441% on Monday, their highest since July 2007, rising more than 7 basis points. Two-year gilt yields climbed nearly 10 basis points to 4.94%.
1. Gilt yields climb
Ten-year UK government bond yields peaked at 5.441% at 1500 GMT, more than 7 basis points higher on the day and above a previous high set on September 14. The rise followed higher US Treasury yields and oil prices; 10-year Treasury yields were up 8 basis points at 5.26%, while oil rose 3% to just under $108 a barrel.
2. Rate expectations
Financial markets expect the Bank of England to raise interest rates in November for the first time since the outbreak of the conflict, with another increase priced in for February. Two-year gilt yields, which are sensitive to rate expectations, rose nearly 10 basis points to 4.94%.
3. Budget pressures
The rise in borrowing costs comes ahead of finance minister John Healey’s first budget statement next month. Healey said he was committed to “fiscal discipline” but offered few clues on addressing the impact of higher borrowing costs and inflation on public finances. A monthly survey from Citi showed the public’s long-run inflation expectations at their highest since March.
