Closing post
Time to wrap up, after a day of drama in the bond markets.
A quick recap:
The UK’s long-term borrowing costs have reached their highest level since 1998, amid a global bond market selloff.
The yield, or interest rate, on Britain’s 30-year bonds rose as high as 5.72% today, over the previous 27-year high set in April.
Analysts said concerns over the UK’s public finances were hitting the bond market, amid speculation that chancellor Rachel Reeves will unveil new tax rises in the autumn budget to keep within the fiscal rules.
The pound also had a bad day – it’s fallen by more than one and a half cents against the US dollar today to $1.338, on track for its worst day since early April.
Raffi Boyadjian, lead market analyst at XM, sums up the day:
The yield on 30-year gilts has jumped to the highest since 1998 following UK Prime Minister Starmer’s minor reshuffle of his ministers yesterday that did little to restore confidence in the government’s economic credibility. Instead, fresh questions have been raised about whether Starmer will replace Rachel Reeves as finance minister with someone who is less committed to tackling the country’s large fiscal hole.
The pound is plummeting as a result, falling more than 100 pips against the dollar and briefly tumbling below $1.34.
Despite the bond market jitters, the UK managed to sell more than £14bn of new debt today, but at the highest cost since 2008.
Lale Akoner, global market analyst at Etoro, says:
“From an investor’s perspective, today’s gilt sale is a double-edged signal. On one hand, elevated yields offer an attractive entry point into UK sovereign debt, especially for institutions seeking long-duration assets with reliable income. The fact that demand was more than 10x oversubscribed suggests gilts are firmly back on the radar as a yield play. Strong demand shows that gilts remain attractive as yields near multi-decade highs, offering compelling returns versus global peers.
“On the other hand, the sharp rise in borrowing costs reflects concerns about fiscal sustainability and inflation risk, which could keep yields volatile. For the government, this creates a paradox: market confidence in UK debt is robust, but financing that debt is increasingly expensive, constraining budget flexibility and raising the stakes for fiscal discipline ahead of the Autumn Budget.”
Here’s our news story on the bond market drama:
Europe’s bond market is set to notch a record day of issuance today, Bloomberg data shows.
There are 28 issuers looking to raise at least €49.6 billion ($57.7 billion), including both Britain and Italy which are tapping the markets today.
That would beat the previous record one-day total of €47.6bn set earlier this year.
As well as the £14bn raised by the UK (see earlier post), investors have also bought €13bn of seven-year note and a €5bn 30-year bond issued by Italy.
This rather backs up the point made this morning, that September is a traditionally busy month for bond sales (with that surge of issuance pushing down prices).
Updated
