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30-year gilt yields hit highest since 1998 as UK bond sell-off spreads

Economists said higher financing costs could cut the chancellor’s budget headroom from £26 billion to £13.8 billion ahead of the 28 October budget if the sell-off persists into autumn.

Reported · Written up by our desk · Government Bonds

UK long-term borrowing costs surged as investors sold government bonds, pushing 30-year gilt yields to a peak not seen since early 1998, according to the Guardian Business and Guardian Economics.

The yield on 30-year gilts, which serves as a benchmark interest rate, hit 5.89% at one point on Tuesday, while 10-year gilt yields were around 5.25%, the highest since the 2008 global financial crisis. Higher yields increase the cost of financing the government’s debt.

Economists said the deterioration could materially affect the fiscal outlook for Chancellor John Healey’s first budget on 28 October. Deutsche Bank’s chief UK economist Sanjay Raja said, based on Tuesday’s yields, headroom against Labour’s budget rule could fall from £26 billion at Rachel Reeves’s spring forecast to £13.8 billion before any additional spending plans.

Raja said almost all of the worsening came from higher government interest costs, while noting that stronger-than-expected UK growth in the first half of the year also contributed to rising yields. The article added that analysts expect the sell-off to flow through to Office for Budget Responsibility forecasts if it continues into autumn.

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