Yields on 10-year UK government bonds rose to 5.268 per cent on Tuesday morning, reaching their highest level since June 2008 as a global bond market rout drove borrowing costs higher across major economies.
The yield on 10-year gilts climbed four basis points, while the 30-year yield remained largely unchanged after surging to a 28-year high of more than 5.9 per cent, its highest level since 1998.
Rising borrowing costs coincided with a jump in energy prices. Brent crude oil surged above $94 a barrel following a flare-up in military attacks between the United States and Iran in the Middle East.
In the United States, yields on 10-year Treasury bonds rose to nearly 4.8 per cent, hitting their highest level in a year and a half. US Treasuries are government debt securities that serve as global benchmark assets for fixed-income markets.
Investors have expressed growing anxiety over stubborn inflation and the commitment of the US Federal Reserve to combat rising prices under its new chairman, Kevin Warsh. A speech delivered by Warsh last week was intended to emphasize his commitment to lowering inflation, but financial markets responded with jitters over the increased likelihood of a US interest rate hike this month.
Oliver Faizallah, head of fixed income research at financial firm Raymond James, said recent bond market movements had been "overwhelmingly driven" by Warsh's statements. Faizallah noted that markets moved sharply on Warsh's hawkish tone despite no new macroeconomic data points being released.
A previous bond rout last month was halted only when US Treasury Secretary Scott Bessent stepped in to inject billions of dollars into the market. However, financial experts believe the intervention will do little to alter fundamental investor concerns regarding US public finances, with total national debt currently standing above $40 trillion.
Eurozone inflation and Asian markets
European government bond yields also moved higher, with Germany's 10-year yields climbing above 3.37 per cent to reach their highest level since 2011. The movement followed official figures showing eurozone inflation topped 3 per cent in August, cementing expectations of an interest rate rise by the European Central Bank this month.
In Japan, 10-year government bond yields crossed the 3 per cent threshold for the first time in three decades. Japanese borrowing costs had been kept low for years through massive central bank debt purchases by the Bank of Japan.
UK budget pressures and fiscal outlook
Kallum Pickering, chief economist at London broker Peel Hunt, said UK bond yields were rising faster than those in rival economies. He warned that there is no room for handouts in the upcoming UK Budget, adding that anyone thinking otherwise is mistaken.
Pickering stated that until a British government musters the courage to cut spending, raise taxes and deregulate to boost supply, bond markets will continue to crowd out genuine economic progress.
