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A view of the Royal Exchange and the City of London as the glass architecture of 22 Bishopsgate Tower disappears into the fog on November 6, 2024. in London, UK.
Mike Kemp | In pictures | Getty Images
The cost of borrowing in the UK rose on Tuesday after an auction of 30-year Treasuries sent long-term bond yields to their highest level in nearly three decades.
By 2:02 p.m. London time, the yield on 30-year UK government bonds rose 3 basis points to 5.212%, the highest level since the late 1990s.
The move came after the UK’s Debt Management Authority sold by auction The £2.25 billion ($2.83 billion) bond has a 30-year maturity and a coupon of 4.375% with a minimum yield of 5.194%, a discount to the bond’s face value.
The 20-year gilt yield added 3 basis points to 5.153%.
On Tuesday, yields on shorter maturities also rose.
The UK 10-year gilt yield was up 3 basis points to trade at 4.641%, while the 2-year and 5-year yields were slightly higher in the first half of the day.
Fears of “stagflation”.
Suzanne Streeter, head of money and markets at Hargreaves Lansdown, said on Tuesday that the UK bond market had been affected by uncertainty both at home and abroad.
Traders were wary that U.S. President-elect Donald Trump’s tariff plan could stoke inflation in America and beyond, she told CNBC in an emailed comment if there was upward pressure on the dollar or U.S. interest rates and consumer spending. prices will rise higher.
Britain is facing its own wave of problems with the British economy unexpectedly fell by 0.1% in October. Inflation is also hovering above the Bank of England’s 2% target, after edge above to 2.6% in November.
On the political front, concerns remain over the Labor government’s fiscal policy and plans to increase taxes by £40 billion ($50.1 billion) due to new and controversial policies. This includes an increase in employer payments for National Insurance – payroll tax – which has caused warnings from enterprises that they will hire less new workers.
On Monday, the British Chamber of Commerce said that business confidence fell to its lowest level since Britain’s “mini-budget” crisis in 2022with many firms citing concerns about covering additional tax costs in addition to rising wages.
“There is particular concern in the U.K. about an increase in stagflation, given that inflation is rising and wage growth remains tepid while the economy stagnates,” Streeter told CNBC on Tuesday. “Appetite to buy long-term UK government debt appears to have fallen amid this uncertainty.”
“Gold yields have risen sharply in recent weeks, which is bad news for the government as it raises concerns about the health of 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 weak investor demand during the latest gilt sell-off underscores market uncertainty.”
He added that the yield on gilt stocks nevertheless represented an “attractive opportunity for long-term investors” thanks to the fact that it was well ahead of the expected level of inflation.
“For investors with a lower risk appetite, short-term 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 auctioned hogs had a 4.375% coupon.
