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UK gilt yields surge near 5.3% amid global bond sell-off

The 10-year gilt yield rose to just below 5.3%, its highest since mid-2008, as renewed US-Iran tensions fanned inflation and rate hike expectations and lifted oil prices.

Reported · Written up by our desk · Government Bonds

A global government bond sell-off resumed on Wednesday, pushing UK borrowing costs higher and intensifying challenges for John Healey ahead of his first budget. In early trading, the 10-year UK gilt yield jumped to just below 5.3%, the highest since mid-2008, as investors dumped bonds over concerns about inflation and spiraling deficits, according to the Guardian Economics.

The renewed escalation between the US and Iran, which began exchanging fire at the weekend, has also lifted the oil price and increased expectations that central banks may need to raise interest rates in coming months. Higher bond yields raise the cost of financing government debt, analysts said, with UK gilt moves since the start of the Iran war potentially wiping out almost half of Healey’s headroom against the government’s fiscal rules.

Deutsche Bank economists estimated that the £26 billion room for manoeuvre created by Rachel Reeves at her spring forecast could be down to less than £14 billion by the time of Healey’s 28 October budget. Healey would then face a choice between rebuilding the margin with tax increases or spending cuts, alongside pressure to fund higher defence spending.

In parallel, the sell-off came after sharp falls in Asian stock markets, with Japan’s Nikkei 225 down 2.9%, China’s CSI 300 down 1.4%, and South Korea’s Kospi down 3.3%. Brent crude was hovering around $95 a barrel, after the US launched new airstrikes on Iranian targets and Tehran conducted counterstrikes targeting American interests in Gulf allies, the outlet added.

Latest closeWTI crude $90.79 ▲5.9%|Brent $95.25 ▲5.3%|Nikkei 225 66,311.93 ▲0.3%

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