Yields on 30-year U.K. government bonds soared to their highest level since 1998 on Tuesday, while 10-year yields hit their highest since 2008, mirroring trends in global bond yields due to rising inflation concerns.
The rise in borrowing costs exacerbated concerns about the weak state of the U.K.’s public finances.
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Thirty-year U.K. government-bond yields, also known as gilt yields, jumped as high as 5.904%, while the 10-year yields increased to 5.255%, LSEG data showed.
The moves came in tandem with a rise in U.S. 10-year Treasury yields, which hit their highest since January 2025, while yields on 10-year Japanese government bonds hit a 30-year high, and 10-year German government-bond yields reached their highest since 2011.
The U.S. struck Iranian rocket launchers on Sunday, and Iran responded by launching missiles at U.S. military sites in Jordan. The Middle East conflict and the blockade on the Strait of Hormuz have pushed up oil prices, raising inflation fears and the prospects of the Bank of England increasing interest rates in the coming months.
Markets fully price in the prospects of three interest rate hikes by the BOE by the end of 2027, LSEG data show.
The U.K. also faces an uncertain fiscal path ahead of the budget statement on October 28, contributing to higher gilt yields.
The budget will be the first under Prime Minister Andy Burnham and could be a key test for U.K. government bonds given weak public finances, Deutsche Bank Research economists Sanjay Raja and Maui Brennan said in a note. If the budget delivers significantly higher borrowing plans, this could cause a painful selloff in gilts, they said.
Gilts have been badly hit because the U.K. combines persistent inflation with weaker growth and fiscal concerns, eToro global market strategist Lale Akoner said.
The latest U.K. public finance data showed government borrowing was 1.8 billion pounds ($2.44 billion) in July, 69% higher than in the same period last year.
Elevated gilt yields offer income opportunities to investors, but they also put pressure on mortgage rates and rate-sensitive stocks, and add strain to U.K. public finances, she said.
