UK sells £4.25bn of 10-year gilts at 5.38% yield, highest since 1999

In a recent auction, the UK Debt Management Office placed £4.25 billion of ten-year gilts on the market, where they were taken up at an average yield of 5.38%, the strongest since September 1999. This rise in borrowing costs arrives as Prime Minister Andy Burnham delivers his inaugural speech at the Labour Party conference and Chancellor John Healey readies the upcoming Budget. Higher gilt yields mean the Treasury must allocate more funds to interest payments, squeezing resources for defence spending, social-care programmes and council-house construction.

Market participants are wary of the new administration’s ability to curb borrowing and of broader global bond-market turbulence sparked by the Iran war and soaring oil prices. The Labour government has pledged to adhere to fiscal rules, but analysts warn that the elevated yields could prompt additional tax hikes or cuts to the growing benefits bill.