UK 20-year gilt yields rise to highest since August 1998 at 5.583%, up 4 bps on day

UK 20-year gilt yields rise to highest since August 1998 at 5.583%, up 4 bps on day

London, Sept 2 (Reuters) - The United Kingdom's 20-year gilt yields hit their highest level since August 1998, rising to 5.583%, up by 4 basis points (bps) from the previous day. This significant increase comes amid a backdrop of a sterling slump and growing concern over the government's autumn budget plans.

The UK Debt Management Office (DMO) sold a record 14 billion pounds ($18.9 billion) of new 10-year government debt on Tuesday, attracting more than 141 billion pounds in orders from investors. Despite the strong demand, the sale was conducted at the highest yield since 2008, with the 4.75% October 2035 gilt offering a yield of 4.8786%, a premium of 8.25 bps over the 10-year benchmark gilt.

The high yield reflects investors' wariness about the UK's economic outlook, particularly the government's upcoming budget. Britain currently faces the highest inflation among the Group of Seven advanced economies and has the highest government borrowing costs. These factors are likely to put pressure on Finance Minister Rachel Reeves to raise taxes again later this year.

The UK's historically long-dated debt issuance has been shifting towards shorter-dated gilts due to changes in the pension landscape and the rising cost of 20- and 30-year debt globally. The DMO's recent focus on short- and medium-dated gilts is a strategic response to these market conditions.

The 10-year gilt auction represented the most issuance at a single event since the DMO began operations in 1998. However, it was also the costliest 10-year borrowing since an auction in July 2008. Orders were close to the record 142.1 billion pounds received at February's 10-year gilt syndication.

Lale Akoner, a global market analyst at investment platform eToro, commented on the situation, stating, "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."

Following the DMO's publication of the syndication results, the yield on 10-year gilts rose to its highest since January, reaching 4.825%, up by 6 bps on the day but in line with U.S. Treasuries.

The current economic climate in the UK, characterized by high inflation and rising borrowing costs, is likely to influence the government's fiscal policy in the coming months. As investors remain cautious, the UK's ability to finance its debt at sustainable levels will be a critical factor to watch.

References:
[1] https://www.reuters.com/world/uk/uk-pays-high-price-sell-record-14-billion-pounds-government-debt-2025-09-02/