Borrowing Costs at 28-Year High as Bond Sell-Off Goes Global
The 30-year gilt yield stands at its highest since 1998 and the 10-year jumped towards 5.3% in early London trading, after Asian markets fell sharply overnight — the Nikkei down 2.85% — in a global bond rout driven by the Gulf war, oil near $95 and inflation fears. Deutsche Bank reckons the Chancellor’s £26bn of Budget headroom could be under £14bn by 28 October. “This is red lights flashing,” said XTB’s Kathleen Brooks.
The uncomfortable truth in the overnight moves is that Britain sits at the sharp end of a global problem: every indebted government is paying more to borrow, but the UK pays most, because markets are pricing a new prime minister whose instincts are expansive against a fiscal position with no slack. Lord O’Neill — Mr Burnham’s own former adviser — saying the Commons statement was the “last thing” investors needed, and that the triple lock and “excessive” welfare spending must now be confronted, is friendly fire of the most damaging kind. The transmission is direct: gilt yields set the price of fixed mortgages and the size of the tax rises available to avoid them. Watch this morning’s auction appetite and the Chancellor’s language from the G20 — reassurance is now a market event.