Yields on British government bonds with a 30-year maturity reached their highest point in over 25 years on Friday.
This surge in yields reflects a global trend driven by mounting tensions in the Middle East, which have raised concerns about the potential for higher oil prices and inflation.
The benchmark 30-year gilt’s yield climbed to 5.134% at 1010 GMT, marking a 5 basis point increase for the day and reaching its highest level since September 1998, based on data from LSEG.
This surpassed the previous peak of 5.115% recorded on October 4th.
Meanwhile, ten-year gilt yields rose by 2 basis points on the day to reach 4.69%, coming close to the 15-year high of 4.755% established on August 17th.
Unlike the situation a year ago, when British government bond yields rose more sharply than in other countries due to concerns about the fiscal plans of then Prime Minister Liz Truss, the current increase is part of a global trend.
Notably, ten-year U.S. Treasury yields rose above 5% for the first time since July 2007, following remarks made by Federal Reserve Chair Jerome Powell, which led investors to believe that interest rates would remain elevated for an extended period.
Richard Hunter, head of markets at Interactive Investor, commented, “Markets remain unsteady and investors undecided, as rising Middle Eastern tensions and bond yields threaten to undermine any thoughts of an immediate rally.”
British government borrowing figures released earlier on Friday were lower than expected for September.
However, Finance Minister Jeremy Hunt expressed concerns that debt servicing costs could double this year due to higher interest rates and inflation, a situation he deemed “clearly not sustainable.”
Although the average maturity of British government debt is approximately eight years, longer than that of other advanced economies, the Bank of England’s quantitative easing program has made the Treasury more sensitive to short-term market fluctuations.
The government’s Office for Budget Responsibility suggests that the effective maturity is closer to two years.
The Bank of England has raised its interest rate 14 times since December 2021, reaching 5.25%.
However, investors currently anticipate a pause, with only a 13% chance of a rate increase at the November 2nd meeting.
The likelihood of a further quarter-point rate hike to 5.5% by March of the following year stands at approximately 55%.