A view looking towards the Royal Exchange and the City of London where the glass architecture of the 22 Bishopsgate tower disappears into smoke 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 hit yields on the long-term bonds at their highest level in nearly three decades.
By 2:02pm London time, the yield on the 30-year gilt – the UK government bond – climbed 3 basis points to 5.212% – the highest level since the late 1990s.
The move followed the UK's Debt Management Office auction off £2.25 billion ($2.83 billion) worth of gilts with a 30-year maturity and a coupon of 4.375% at a minimum yield of 5.194%, representing a discount over 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.
The UK 10-year gilt yield gained 3 basis points to trade at 4.641%, while yields on 2- and 5-year gilts were slightly higher in the early afternoon.
Concerns about 'stagflation'
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said on Tuesday that uncertainty had affected the UK bond market both at home and abroad.
Traders were wary, she told CNBC in an emailed comment, that US President Donald Trump's tariff plan could trigger inflation in America and beyond, if pressure rises on the dollar or interest rates than US and that consumer prices are pushed higher.
The UK has serious problems with the British economy contracted an unexpected 0.1% in October. Inflation is also rising above the Bank of England's target of 2%, subsequently going higher to 2.6% in November.
Politically, there are concerns about the Labor government's fiscal policies and plans increased taxes by £40 billion ($50.1 billion) through several new and controversial policies. Among them is an increase in employers' National Insurance payments – tax on employment – which is being encouraged warnings from businesses that will be less likely to take on new workers.
On Monday, the British Chambers of Commerce said business confidence has fallen to its lowest level since then UK “mini-budget” crisis in 2022with many companies citing concerns about covering additional tax costs as well as salary increases.
“In the UK, there is particular concern about stagflation, as inflation has been creeping up and wage growth remains hot, while the economy has been stagnant,” Streeter said. to CNBC on Tuesday. “The appetite for buying 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,” said Richard Carter, head of fixed interest at Quilter Cheviot , in a note to clients on Tuesday.
“The Bank of England remains wary of cutting interest rates too aggressively, and the tight demand from investors at the latest gilt sale reinforces the uncertainty in the market.”
He said gilt yields nevertheless presented an “attractive opportunity for long-term investors”, thanks to being well above expected inflation rates.
“For investors with a lower risk appetite, short-term gilts still offer a promising route and are less sensitive to market fluctuations,” he said.
Correction: This article has been updated to correctly reflect that the auction gilts had a coupon of 4.375%.
