UK government bond yields highest since 1998

The yield, or interest rate, on 30-year UK government bonds has hit its highest level since 1998, at 5.115%, Refinitiv data has shown, as traders believe inflation will be more sticky.

This sits above the levels seen a year ago in the aftermath of Liz Truss’s mini-budget.

It is also a significant increase from the yield of around 3.75% at the beginning of September, reflecting growing investor concerns about the economy and the government's fiscal plans.

Shorter-dated UK government bond prices also weakened on Wednesday, with the yield on 10-year gilts reaching their highest level since August at 4.669%.

The rise in borrowing costs will mean chancellor Jeremy Hunt now has less room for spending rises or tax cuts in his autumn statement, as they reflect the cost of issuing new government debt.

The surge in global bond yields led to a slump in riskier assets like stock markets.

"It’s a very difficult market. It is all back to yields, that’s the main driver of markets," Sandrine Perret, multi-asset portfolio manager at Unigestion, said. "The pivot that most investors were expecting in September has not come yet – that’s the big driver of all market pricing at the moment."

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It also comes amid a wider sell-off in the bond market. US treasuries led a selloff in debt markets following stronger-than-expected job openings data. US Treasury yields hit their highest since 2007 amid fears the Federal Reserve will keep borrowing costs painfully high for longer than hoped.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: "This is already pushing fresh Federal borrowing into ‘ouch territory’ and there are concerns yields could inch even higher. The sell off in long-term government bonds has been spreading in Europe too.

"Yields on 30-year gilts have headed above 5%, with investors demanding more interest to buy in, giving ministers less wiggle room to ease cost-of-living pain through tax cuts or public sector pay offers, particularly given the UK government’s self-imposed borrowing rules."

Eurozone bond yields rose to their highest in more than a decade. The interest rate on German 10-year bunds rose above 3% for the first time since 2011 while bond yields in other euro zone countries, such as Italy and Spain, also rose sharply.

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Neil Wilson of Markets.com said: "Central banks are no longer buying bonds, they are selling them. This is a mechanistic explanation but simple and true – someone else has to buy the debt and there is a lot more of it now.

"This can only result in lower prices, higher yields. The great bond bull market is dead, a new bear market is taking over – this is the paradigm shift we have been talking about for at least the last three years. This means stocks stuck in multi-year ranges – no new highs and the lows are not yet in."

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