On November 6, 2024, London, England, looking at the Royal Exchange and the City of London, the glass building of No. 22 Bishopsgate Tower disappeared in the mist.
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British borrowing costs rose on Tuesday after long-term bond yields hit their highest levels in nearly three decades following an auction of 30-year bonds.
As of 2:02 pm London time, the yield on 30-year gilts, a British government bond, climbed 3 basis points to 5.212%, its highest level since the late 1990s.
The move comes after the UK Debt Management Office be auctioned Treasury bonds worth 2.25 billion pounds ($2.83 billion) have a maturity of 30 years and an initial yield of 4.375%.
The 20-year UK government bond yield rose 3 basis points to 5.153%.
Yields on shorter-dated British government bonds were also higher on Tuesday.
The UK 10-year gilt yield rose 3 basis points to 4.641%, while the 2-year and 5-year gilt yields rose slightly in the early afternoon.
“Stagflation” concerns
Susannah Streeter, head of currencies and markets at Hargreaves Lansdown, said on Tuesday that the UK bond market was affected by uncertainty at home and abroad.
She told CNBC in emailed comments that traders are cautious and that if the dollar comes under upward pressure or U.S. interest rates and consumer prices are pushed higher, U.S. President-elect Donald Trump’s tariff plans could become more widespread in the United States and beyond. Stirring inflation elsewhere.
The UK is also facing a series of problems. The British economy October unexpectedly contracted 0.1%. Inflation is also hovering above the Bank of England’s 2% target, after rising slightly to 2.6% in November.
On the political front, concerns linger over the Labor government’s fiscal policy and plans to raise taxes by £40 billion ($50.1 billion) through a series of new, controversial policies. These include increases in employers’ national insurance contributions, a form of income tax, prompting warnings from businesses that they are unlikely to hire new workers.
On Monday, the British Chamber of Commerce said business confidence had fallen to its lowest level since the UK’s 2022 “mini-budget” crisis, with many businesses expressing concern about bearing the cost of additional taxes. In addition to rising wages.
“In the UK, there are particular concerns about the emergence of stagflation given that inflation has been climbing, wage growth has remained strong and the economy has been stagnant,” Street told CNBC on Tuesday. “Amid this uncertainty. “Interest in buying long-term UK government bonds appears to have declined.”
“Gilt yields have surged sharply in recent weeks, which is bad news for governments as it triggers raised concerns about the state of public finances.
“The Bank of England remains wary of cutting interest rates too aggressively, while tepid investor demand at the latest gilt sale highlighted market uncertainty.”
He added that with inflation levels well above expectations, gilt yields remain “an attractive opportunity for long-term investors”.
“For investors with lower risk appetite, short-term Treasury bonds still offer a promising avenue and are less sensitive to market fluctuations,” he said.
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