Overview
- The Treasury tapped the January 2056 gilt in an auction that on Tuesday pushed 30-year yields to about 5.8–5.9% and was expected to raise up to £5 billion.
- Markets say the jump reflects stubborn UK inflation, heavy government bond issuance, the Bank of England selling gilts and a wider global sell-off in sovereign debt.
- Bloomberg Economics and market analysts estimate the government's fiscal headroom has roughly halved since spring, leaving the Chancellor with much less room for manoeuvre under fiscal rules.
- Public sector net debt stands at just over 94% of GDP and debt interest costs are already large, with the ONS reporting £7.7 billion of debt interest in July, which makes the budget more sensitive to higher yields.
- Higher gilt yields are feeding through to real life by pushing up mortgage and corporate borrowing costs, creating paper losses for long-term bond holders and pension funds, and tightening choices ahead of the October 28 Budget.