UK government long-term borrowing costs have decreased after reaching their highest level since 1998 earlier this week. The yield on 30-year government bonds fell to 5.55%, down from a peak of 5.75% on Wednesday. While bond yields have been increasing globally, concerns about UK government finances persist. Bank of England governor Andrew Bailey stated that it is important to not overly focus on longer-term bond yields.
In his comments to the Treasury Committee, Bailey noted that rising interest rates are a trend seen across developed nations. Other countries have similarly experienced increases in borrowing costs; for instance, 30-year bond yields in Germany, France, and the Netherlands are at their highest since 2011, while US 30-year Treasury bond yields have risen to their highest in over a month. Contributing factors include geopolitical tensions, US trade policies, and high levels of government borrowing.
Bailey emphasized that despite the high yield on UK bonds, it is not currently used as a funding source. Governments typically finance operations by selling bonds, which represent loans they promise to repay. The yield on UK gilts has been climbing for several months. The US bond market, which is pivotal to the global financial system, is facing similar pressures linked to concerns around high debt levels and inflation impacts from tariffs.
US 30-year bond yields rose to nearly 5% on Wednesday but retreated to approximately 4.88% following data indicating a drop in job openings in July. This data has fueled expectations for a potential interest rate cut by the US Federal Reserve later this month. In the UK, despite recent rate cuts by the Bank of England, Bailey expressed uncertainty regarding the timeline and speed of future cuts. Concurrently, the British pound has weakened against the US dollar, trading at $1.3439 after a sharp decline on Tuesday.
Source: https://www.bbc.com/news/articles/ckgy2l928xxo?at_medium=RSS&at_campaign=rss