Home Technology UK Bond Yields Are Now Trading at Global Financial Crisis Levels

UK Bond Yields Are Now Trading at Global Financial Crisis Levels

by Atlanta Business Journal
  • UK bond yield traded at levels not seen since the global financial crisis on Tuesday. 
  • The two-year gilt’s yield jumped as high as 4.761%, the most since 2008. 
  • Meanwhile, the UK’s 30-year bond yields topped 5% for the first time since 2007. 

Yields on UK bonds climbed higher on Tuesday, hitting the highest levels in 14 years or more, as economic uncertainty and the pound’s crash continued to roil Britain.

The two-year gilt’s yield jumped as high as 4.761%, the most since 2008 and up from about 4.5% on Monday.

Meanwhile, the yield on the UK’s five-year gilts also hit a 14-yea high, and 30-year bond yields topped 5% for the first time since 2007. Now the spread between five- and 30-year yields is the widest since 1997.

The moves came after the pound sterling sank to an all-time low against the US dollar on Monday. 

British debt, along with the pound, tanked after the UK’s new chancellor detailed a slew of prospective tax cuts and hinted more were coming. Investors fear the cuts would not only increase government debt but also fuel inflation, spurring the Bank of England to hike interest rates more aggressively and potentially drag the UK economy into a deep recession. 

Money markets are now pricing in more tightening from Bank of England that will bring the benchmark rate to 6.25%, the highest since 2001.

On Monday, the yield on UK five-year gilts surged passed those of Greece and Italy. That indicates markets see more risk in the UK’s medium-term gilt than in equivalent bonds for the most heavily indebted eurozone countries.

As of July, Greece had a debt-to-GDP ratio of 189.3% and Italy’s was 152.6%, representing the top two in the currency union. The UK’s was 99.6% in July.

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