The UK paid the highest interest rate on a 30-year gilt sale since its Debt Management Office was created in 1998, as bond market turbulence tightens the squeeze on public finances. The higher borrowing cost lands alongside rising UK mortgage rates and fewer mortgage products on the market, while a debate rages over what is really driving up gilt yields.
Britain sold £4.25bn of gilts maturing in 2056 at a yield of 5.8168%, according to Reuters — the highest yield for any gilt sale since the Debt Management Office was created in 1998. That rate sits above the 5.4047% yield paid on similar 30-year debt in May 2025.
Bond sell-off squeezes fiscal headroom
The bond sell-off has been driven by several factors, including fears that higher inflation will force central banks to lift interest rates, concerns that some countries aren't controlling spending, and competition from AI companies issuing debt to fund data-centre rollouts. The higher borrowing cost will eat into the UK's headroom to keep within its fiscal rules, adding to the challenge facing chancellor John Healey.
This has revived talk of a "moron premium" on UK debt, a term coined by TS Lombard's Dario Perkins after the 2022 mini-budget sell-off. But Panmure Liberum's Simon French argues the main driver is the UK's inflation problem rooted in an inefficient domestic supply side, though he says Brexit did add inflationary friction to UK trade, just less significant than the domestic supply issues.
Despite the high rate, demand for the debt held up. According to Reuters, the UK received more than £85bn of bids for the sale, letting it select the most attractive offers. Aberdeen Investments' Matthew Amis said "today's 30-year syndication was a key health check for the gilt market."
Mortgage rates climb as bond turmoil filters through
The turbulence is also hitting borrowers directly. Data provider Moneyfacts reports the average two-year fixed residential mortgage rate rose to 5.65%, up from 5.63% the previous working day, while the average five-year fixed rate climbed to 5.70% from 5.68%. Lenders have also pulled products from the market, leaving 7,417 residential mortgage products available, down from 7,485 the day before.
MPs on the Treasury select committee are due to question Bank of England governor Andrew Bailey later Tuesday on whether the central bank will keep gilt sales under quantitative tightening at their current pace.
Source: The Guardian
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