Thirty-Year Gilt Yield Hits 6%, a Twenty-Eight-Year High
The yield on Britain’s thirty-year bonds reached 6% this morning for the first time since 1998, as a global bond sell-off intensified on fears that the American deficit is becoming unsustainable. The ten-year gilt went through 5.5%. London fell 1.7% in early trading, with Frankfurt and Paris each down 1.1%. The Budget is three and a half weeks away.
The move is global, which cuts both ways for ministers: they can fairly say it is not a verdict on them, and they equally cannot borrow their way around it. The American ten-year reached its highest since 2002, the German ten-year its highest since 2008 at 3.6179%, while the French ten-year jumped eleven basis points and the Italian ten. Mohit Kumar of Jefferies set out the mechanics: “Inflation, deficit and issuance concerns continue to weigh on the bond market,” with “a buyers’ strike as investors do not want to step in till we get some form of stability” and hedge funds too bruised to trade against the move. Axel Rudolph of IG pointed at oil, warning that persistent inflation and higher crude “could keep rates elevated for longer”. For the Chancellor the arithmetic is unforgiving: a thirty-year yield beginning with a six raises the cost of servicing debt and shrinks his headroom weeks before he must fund a national care service. Watch gilt auction demand between now and 28 October.