A view looks towards the Royal Stock Exchange and the City of London as the glass architecture of 22 Bishopsgate Tower disappears into fog on November 6, 2024 in London, United Kingdom.
Mike Kemp | In pictures | Getty Images
Borrowing costs rose in the United Kingdom on Tuesday, after a 30-year Treasury bond auction sent yields on longer-term bonds to their highest level in nearly three decades.
As of 2:02pm London time, the yield on 30-year British government bonds had risen 3 basis points to 5.212%, its highest level since the late 1990s.
This move came after the UK Debt Management Office Sold at auction 2.25 billion pounds ($2.83 billion) of bonds with a maturity of 30 years, offering an initial yield of 4.375%.
The 20-year bond yield added 3 basis points to trade at 5.153%.
Bond yields with shorter maturities also rose on Tuesday.
UK 10-year government bond yields rose 3 basis points to trade at 4.641%, while 2- and 5-year bond yields were slightly higher in the early afternoon.
“Stagflation” fears.
Susannah Streeter, head of finance and markets at Hargreaves Lansdowne, said on Tuesday that the British bond market was affected by uncertainty both domestically and abroad.
She told CNBC via email comments that traders were concerned that US President-elect Donald Trump's tariff plan could be inflationary in America and beyond, if upward pressure is imposed on the dollar or US interest rates and consumer prices rise.
The UK is facing its own wave of problems with the British economy unexpectedly shrinks by 0.1% In October. Inflation is also hovering above the Bank of England's 2% target. edging higher To 2.6% in November.
On the political level, concerns remain about the fiscal policies pursued by the Labor government and its plans to achieve this – Increase taxes by 40 billion pounds ($50.1 billion) through a set of new and controversial policies. These include the increase in National Insurance payments to employers – a tax on profits – which has led to this Warnings Companies will be less likely to hire new workers.
The British Chambers of Commerce said on Monday that business confidence had fallen to its lowest level since then UK 'mini-budget' crisis for 2022as many companies expressed concerns about covering the additional tax costs In addition to higher wages.
“In the UK, there are particular concerns about persistent stagflation, given that inflation is creeping up and wage growth remains hot, while the economy stagnates,” Streeter told CNBC on Tuesday. “The willingness to buy long-term UK government debt appears to have declined amid this uncertainty.”
“Government bond yields have risen sharply in recent weeks, which is bad news for the government as it raises concerns about the state of public finances,” Richard Carter, head of fixed interest at Quilter Cheviot, said in a note to clients on Tuesday.
“The Bank of England remains cautious about cutting interest rates too aggressively, and tepid investor demand in the latest government bond sales highlights market uncertainty.”
He added that government bond yields nonetheless presented an “attractive opportunity for long-term investors,” thanks to being well above expected inflation levels.
“For investors with a low appetite for risk, short-term bonds still offer a promising avenue and are less sensitive to market fluctuations,” he said.
