UK gilt auction yield hits 5.383%, highest since 1999
The UK government paid its highest 10-year borrowing cost in 25 years at a £4.25bn bond sale, reflecting intense market pressure ahead of a critical
The UK government sold £4.25bn of gilts maturing in 2036 at an average yield of 5.383% on Tuesday. This is the highest yield accepted at a 10-year gilt auction since September 1999. Bids covered the offering 3.34 times, and the auction tail was 0.5 basis points. The Debt Management Office conducted the sale. Yields stood at 5.39% after the auction concluded.
Context of rising yields and fiscal pressures
The auction followed months of turmoil in government bond markets driven by inflation fears. Ten-year yields touched 5.44% on Monday, a 19-year peak. Traders expect the Bank of England to raise interest rates as many as five times by the end of 2027. Higher bond yields increase the cost of servicing the national debt. This surge is part of a global increase in borrowing costs. Elevated energy prices are fueling fears that inflation will remain higher for longer. Concerns also exist over the huge scale of public borrowing and the increasing debt-servicing burden.
Budget and policy drivers behind demand shifts
Buyers are seeking a bigger premium due to the possibility of increased spending in next month's budget. The October 28 budget is shaping up to be a high-stakes moment for Chancellor of the Exchequer John Healey. Market appetite has shifted compared to last month. The previous sale of the same bond in August saw bids covering more than 3.6 times the amount on offer and had a tail of just 0.1 basis point. It was sold at a yield of 5.16%.
| Auction Metric | August Sale | September Sale |
|---|---|---|
| Yield | 5.16% | 5.383% |
| Bid Cover | >3.6x | 3.34x |
| Auction Tail | 0.1 bps | 0.5 bps |
Broader economic indicators showing strain
Meanwhile, other data points reflect wider economic caution. Demand for UK mortgages slumped to a 32-month low in August. Just 54,918 mortgages for new home purchases were approved that month, the lowest seasonally adjusted total since December 2023. In the United States, job openings dropped to 7.079 million in August from 7.335 million in July. US consumer confidence fell to the lowest level since 2014. The Conference Board’s gauge decreased by 6.7 points to 81.9 points. Dana Peterson, the chief economist at the Conference Board, stated that consumers’ write-in responses regarding factors affecting the economy were mostly pessimistic in September. References to prices, the high cost of goods and services, and oil and gas prices rose to new heights.
Evelyne Gomez-Liechti, a multi-asset strategist at Mizuho International Plc, commented on the UK auction. Yields hovered near 5.39% after Tuesday's sale, indicating sustained market pressure on UK government borrowing costs.
