Good morning, and welcome to MoneyWeek’s live blog covering today’s big financial news: the spike in gilt yields that threatens to upend chancellor Rachel Reeves’ Autumn Budget just months after it was announced.
The background
Gilt yields – effectively, the interest rate the UK government pays on its debt – have skyrocketed over the last two days to their highest level since the financial crisis.
This puts chancellor Rachel Reeves in a tight spot. Her Autumn Budget – barely two months old – risks unravelling as the costs of servicing UK government debt soar.
Why are gilt yields rising?
Conservative MPs blamed Reeves’ Budget for spooking bond markets, while Labour MPs have attempted to push the blame back onto the previous Conservative government for running up the “black hole” that forced Reeves into tax rises.
Matthew Ryan, head of market strategy at Ebury, views the yields spike as “a damning indictment of Labour’s fiscal policies”. Ryan singles out the increase to employer NI contributions “which businesses have already warned will lead to higher prices and a worsening in labour market conditions”.
Laith Khalaf, on the other hand, points to the fact that bond yields have been rising in the US and the UK over recent months, and thinks that this week’s spike is more due to the potential impact of Donald Trump’s incoming presidency.
“The fact yields are rising on both sides of the Atlantic does suggest the new year has brought with it a focus on the incoming US president, and the potential for his trade and immigration policies to be inflationary,” says Khalaf.
Mike Riddell, portfolio manager, Fidelity International, seems to agree: “A common conclusion is to point fingers at the government. But this would miss the point; it is mainly a global fixed income story. UK gilt yields are broadly moving with US Treasuries.” He also points to similar moves in long-dated German government bonds over the past month.
Treasury response
“No one should be under any doubt that meeting the fiscal rules is non-negotiable and the Government will have an iron grip on the public finances.
"UK debt is the second lowest in the G7 and only the OBR’s forecast can accurately predict how much headroom the government has – anything else is pure speculation.
“Kick-starting economic growth is the number one mission of this Government as we deliver on our Plan for Change. Over the coming weeks and months, the Chancellor will leave no stone unturned in her determination to deliver economic growth and fight for working people.”
The Treasury also iterated that “the current budget deficit is forecast to be £55.5 billion in 2024-25. From then, it improves in every year until 2027-28 when the current budget is in surplus”.
The spokesperson said that Reeves will “deliver a speech in the coming weeks on the Government’s economic strategy and plan for growth”, but did not respond to a question on whether or not she will address Parliament on the matter today. This appears unlikely given her scheduled trip to China.
Taxes to increase?
“Higher yields put pressure on government finances and increase the risk that Reeves will come back with another tax raising Budget,” says Khalaf.
Over the long term this could impact the UK’s growth prospects.
“Weak demand for UK debt raises the risk of either government spending cuts or further tax hikes to balance the country’s finances, neither of which would be positive for growth,” says Ryan.
An opportunity for bond investors?
Those with gilt investments will have experienced some recent losses as a result of the latest developments. “The typical gilt fund is down 2.5% in the last three months, while the typical pension lifestyling fund is down 4.4%,” according to Khalaf.
The flipside is that the yields spike is creating income opportunities. “Fresh bond investors might be licking their lips as yields rise and they are able to lock into higher rates,” Khalaf adds.
2022 all over again?
It doesn’t take a particularly long memory for today’s events to recall the last time rising gilt yields threw the UK government into chaos.
Liz Truss’s infamous ‘mini-budget’ of September 2022 sent gilt yields up 1.2% within days of its announcement. This ultimately forced Truss to resign.
“Today, the UK’s demons are back, driven by heightened fiscal concerns – evoking memories of Liz Truss’s chaotic 'mini-budget’ days,” says Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “Back then, markets lost confidence in the government’s spending plans, triggering an aggressive selloff that forced the BoE to intervene.”
“The 2022 crisis was self-inflicted,” he says. “It was a UK-driven policy shock. The easiest way to see this is that gilt moves back then completely decoupled from other markets and idiosyncratically sold off.
“This time round, all gilts are doing is mirroring US treasuries. The most straightforward way to demonstrate this is that the 10-year UST - Gilt spread is moving sideways and is exactly where it was six months ago.”
The bad news, though, is that “precisely because recent market volatility is not self-inflicted there is no easy way out”.
Saravelos argues that because the UK relies relatively heavily on foreign financing for its domestic debt, gilts are more exposed than other developed economies’ bonds to US Treasury sell-offs.
“The chancellor and central bank have an important job to do,” says Saravelos. “The Bank of England needs to maintain the credibility of the inflation target. The chancellor needs to signal sensitivity to the worsening global environment by potentially paring back some spending. Both need to avoid any signal of fiscal dominance.
“But beyond a few tweaks here and there, it is largely the currency that will do the work of stabilizing the bond market combined with an eventual peak of US yields.”
What do higher gilt yields mean for the pound?
It’s a pretty miserable time for sterling.
“Typically, higher inflation expectations or a hawkish adjustment to the BoE policy stance drive yields higher, and that is bullish for the pound,” says Kyle Chapman, FX Markets Analyst at Ballinger Group. “In this case, the move is driven not by the macro data, but by heavy gilt supply, concerns about the UK government’s debt sustainability, and the inflationary impacts of the extra fiscal spending in the pipeline.”
As Saravelos says, though, the pound’s fall is an important mechanism through which the gilt market can stabilise.
Every cloud has a gold lining?
While the surge in gilt yields has caused a headache for the government and some investors, it has meant good news for the gold price. Up 37.5% compared to this time last year, the gold price is now £2,172 per Troy ounce – a new GBP record.
“Because gold pays no interest, it usually falls in price when bond yields rise,” says BullionVault director of research Adrian Ash. “Gold rising together with government borrowing costs signals how uneasy the markets are becoming over the UK's budget deficits and long-term debt.”
Gilts and Treasuries joined at the hip
That’s not to say that the ramifications are the same, though.
“The US has the benefit of being the world’s reserve currency, which underpins demand for dollar denominated assets such as US Treasury bonds,” says Laith Khalaf, head of investment analysis at AJ Bell. “Here in the UK, higher yields put pressure on government finances and increase the risk that Reeves will come back with another tax raising Budget.”
Are higher gilt yields good news for annuity rates?
Many savers who are approaching retirement have a large allocation to bonds in their portfolio – part of their de-risking strategy. Their portfolios may have suffered losses recently as a result of the selloff in gilt markets.
“The surge in gilt yields could push up annuity rates in the coming weeks,” says Helen Morrissey, head of retirement analysis at Hargreaves Lansdown. “It would add a further boost to a market that has enjoyed enormous growth in recent years.”
She explains that a 65 year-old with a £100,000 pension could currently get up to £7,235 per year from a single life level annuity with a five year guarantee. “We could see this increase further from here,” she adds.
Do higher gilt yields point towards stagflation?
The nightmare scenario is that elevated UK government debt hinders the government’s ability to kickstart growth in the economy, and coincides with an inflationary environment – a combination that economists call ‘stagflation’.
“There is also particular concern brewing about stagflation taking hold, given that inflation has been creeping up and pay growth is still hot, while the economy has been stagnating,” says Susannah Streeter, head of money and markets, Hargreaves Lansdown. “It’s unclear to what extent the UK government’s investment in infrastructure will provide a boost to growth over the longer term.”
Streeter adds: “it seems appetite to buy long-term dated UK government debt has fallen amid the increased uncertainty gripping global bond markets.”
Mortgage costs unlikely to fall any time soon
The start of 2025 looks a little different, though. Ben Thompson, deputy chief executive at Mortgage Advice Bureau, expects mortgage rates to “rise in the near term at least”.
He says: “Some of the factors underlying the recent spike may well soften soon, but it has felt for a while that inflation would persist at a slightly higher level than targeted and as such the cost of borrowing would remain broadly at current levels and isn’t about to fall meaningfully anytime soon.
“What we have seen is the market gradually adjust to a higher rate environment in part helped by wage growth and that means that those who have waited to buy or move home for a few years will now just want to commit and get on with it, as opposed to waiting for mortgage rates to drop much further.”
“We think that bonds will recover before long”
The selloff in the UK government bond market has sparked further criticism of Reeves’ Autumn Budget this week. However, experts at consultancy Capital Economics have called the latest developments a “global bond market storm in a British teacup”.
“We think that bonds will recover before long, with yields falling back more in the UK than elsewhere,” says Hubert de Barochez, senior markets economist at the consultancy.
“One reason is that we expect Trump to fail to cut taxes as much as planned, and therefore that worries over US public finances will abate a bit,” he adds. “What’s more, with inflation near to target in most places, central banks have more room to cut rates if necessary.”
“This is why we forecast the 10-year gilt yield to fall back to 4.0% by the end of the year, from roughly 4.8% now,” de Barochez explains.
That concludes our coverage of the UK gilt market today. Thank you for following along with us. We will be back with more live analysis on markets, inflation and interest rates in the coming weeks, with a special focus on the US in the lead-up to Trump’s return to office.
Good morning, and welcome back to our live coverage of the ongoing gilt yields story.
Dan and Katie here, bringing you live coverage and analysis throughout the day.
Eyes on US jobs data as gilt yields edge upwards
Reuters predicts that approximately 160,000 jobs will have been added during December, with the unemployment rate holding steady at around 4.2%. ING suggests that unemployment could tick up to 4.3%, but predicts that anything above the 150,000 jobs mark would “maintain upside momentum for yields”.
A disaster in the making for Reeves?
Chancellor Rachel Reeves rejected calls to address Parliament over the gilt yields crisis yesterday, instead flying to China for a pre-planned three-day visit aimed at strengthening the UK’s trade and economic ties with the country.
While culture secretary Lisa Nandy has defended Reeves’ decision to go ahead with the trip, Reeves will surely have half her mind on the implications of the yield spike for her domestic agenda.
“The recent spike in government borrowing costs is in danger of turning into a political disaster for Rachel Reeves,” says Tom Selby, director of public policy at AJ Bell, “who will no doubt be sweating over the risk that any wiggle room in public finances could evaporate.”
Silver linings
“However, there will have been plenty of people cheering as gilt yields jumped to highs not seen since the 2007/08 financial crash,” he adds. “Returns on cash investments should be bolstered if gilt yields remain elevated, meaning people’s rainy-day savings should grow by more than previously expected. Companies administering defined benefit (DB) pension schemes could also see the value of their accounting liabilities substantially reduced, potentially swinging from a deficit to a surplus as a result.”
“Additional government spending, global uncertainty and higher taxes are all contributing to the recent increase in the cost of government borrowing,” says Nick Flynn, Retirement Income Director at Canada Life. “Whilst there are no cast iron guarantees, if this trend continues, then it’s a strong possibility that annuity rates will be maintained or even increase in 2025.”
Gilt yields and taxes
The challenge for Reeves is that the gilt yield increase could completely erase the £9.9 billion headroom contained in her Autumn Budget.
“In order to maintain fiscal credibility, there is a real chance that the Chancellor will be forced to announce at the fiscal update scheduled for 26th March lower government spending and/or higher taxes compared to existing plans,” says Ashley Webb, UK economist at Capital Economics.
Or, the government could expand the tax base by introducing VAT on products or services that are currently exempt – much as it has recently done with private schools.
All this assumes that Reeves won’t break Labour’s manifesto promise not to raise taxes on “working people” – which Webb calls “the government’s least politically palatable option”.
However, “it could easily raise a lot of revenue from only a small increase in the rate of VAT, income tax or national insurance tax. A 1 percentage point rise in each would raise £9.0bn, £7.3bn and £4.7bn respectively by 2026/27.
“Overall, while a lot can change between now and the fiscal update scheduled for 26th March,” says Webb.
Yields on UK ten-year gilts have ticked up to 4.88% this afternoon, jumping from around 4.83% in the wake of that US jobs report.
Despite new jobs coming in above expectations, and unemployment unexpectedly falling to 4.1%, gilt yields haven’t (yet) exceeded yesterday’s highs.
Why has strong US jobs data pushed gilt yields higher?
“The larger-than-expected 256,000 gain in non-farm payrolls in December and drop back in the unemployment rate to 4.1% supports the Fed’s decision to slow the pace of rate cuts and has heightened speculation that the loosening cycle is already over, putting further upward pressure on Treasury yields,” says Thomas Ryan, North America economist at Capital Economics.
Market strop out intensifying
The S&P 500 – which was closed yesterday due to a national day of mourning for former US president Jimmy Carter – opened 0.47% below Wednesday’s close, and has fallen a further 0.35% since then.
“Worries about interest rates staying higher for longer have been reignited by this stronger-than-expected labour market data,” says Susannah Streeter, head of money and markets, Hargreaves Lansdown. “Sentiment has soured on equity markets and the bond market strop out is showing signs of intensifying.”
Further yield increases on the way?
“2025 has already seen notable increases in gilt and US Treasury yields,” says Hal Cook, senior investment analyst, Hargreaves Lansdown. “Today’s employment data out of the US is likely to cause further increases from here.
“The 10-year US Treasury yield spiked just under 10 basis points on the announcement. The 10-year UK gilt yield jumped 5 basis points at the same time. Volatility is expected to continue as the information is digested.”
“Data for December, given the holiday season, could well see a big revision in future,” he says, “but that won’t stop markets reacting in the meantime.”
Bond market on the move
As of 4pm, they’re sitting around the 4.84% level – a little above where they were prior to the US data release, but well below the afternoon peak.
“The whole global bond market is on the move as investors shift their expectations for 2025. There is no one smoking gun which explains why bonds are selling off now, but a strong US jobs report is only going to add fuel to the fire. That points to a hot US economy and consequently less scope for rate cuts in the US, with Trump’s potential controls on immigration tightening the labour market even further.
“The US bond market exercises a heavy influence on UK gilts so we can expect some spillover to our own bond market. A strengthening dollar also puts upward pressure on UK inflation which is another byproduct of markets scaling back their forecasts for US interest rate cuts.”
Gilt yield increase is “a problem, not a crisis”
“This week’s leap in gilt yields creates more problems for the Chancellor and is an extra headwind for the economy. But it is not a crisis,” says Paul Dales, chief UK economist at Capital Economics.
While “it is always worrying when UK bond yields rise by more than yields elsewhere and the pound weakens”, Dales says that “the current situation is nothing like the sterling crisis of 1976 or the Liz Truss episode in 2022 as has been suggested”.
“That’s because the causes are different” says Dales. “The crises of 1976 and 2022 were due to loose fiscal policy at home that led to the government losing credibility. This time, the cause has been global, with the markets concluding that real interest rates need to be higher for longer everywhere to trim inflation.
“The UK has been hit harder than others mainly because of its reliance on overseas investors to fund its current account and government budget deficits. Indeed, the UK’s ‘twin deficits’ are bigger than every other G7 economy, and the euro-zone, except the US, which is seen as a safe haven as the dollar is the world’s reserve currency.
“So when global risk sentiment declines, the UK is more vulnerable to funds flowing to safer shores.”
That said, the gilt yields spike “does cause problems”. Capital Economics estimates that the increase in the debt interest payments will be sufficient to break the fiscal rules Rachel Reeves has previously set out. As discussed, that could force her into either new spending cuts and/or new tax rises – with the former of those “more likely”, according to Dales.
Time to buy bonds?
“Bonds are very attractively priced at the moment”, Oliver Faizallah, head of fixed income research at Charles Stanley, tells MoneyWeek. The current climate – one in which inflation is relatively low and stable, while bond yields are high, is “as good a time as it’s ever been to buy bonds”.
He also explains that, while government bonds like gilts are traditionally allocated to the safer parts of a portfolio, high yield bonds can be thought of similarly to equities, and can form part of investors’ allocation to risk given their yields.
That's all from us this week. Goodbye for now, but join us next week when we'll pick up the latest news and developments with the ongoing gilt rate story.
Gilt yields up Monday morning
We’ll bring you all the latest updates and analysis as the situation unfolds.
Reeves issues China trade update
The treasury announced on Saturday that the visit has resulted to agreements to deepen economic cooperation between China and the UK, with the agreements worth an estimated £600 million to the UK over the next five years and a potential £1 billion over the longer term.
“The agreements we’ve reached show that pragmatic cooperation between the world’s largest economies can help us boost economic growth for the benefit of working people – a priority of our Plan for Change,” said Reeves.
“More widely, today is a platform for respectful and consistent future relations with China. One where we can be frank and open on areas where we disagree, protecting our values and security interests, and finding opportunities for safe trade and investment.”
Rumour mill still grinding
Capital Economics estimated on 7 January (last Tuesday) that the rise in gilt yields had wiped out £8.9 billion of the £9.9 billion fiscal headroom that was built into the Autumn Budget. Yields have increased still further since then. There is a very real possibility that all of it will be gone by the time the Office for Budget Responsibility (OBR) revises its forecasts on 26 March.
“With the UK still in the eye of the storm of concern worrying bond markets, it’s set to keep the rumour mill grinding about difficult tax and spending decisions ahead for Keir Starmer’s government,” says Susannah Streeter, head of money and markets, Hargreaves Lansdown. “The government is attempting to wrest the narrative away from painfully high borrowing costs and a plunging pound.”
Pound hits 14-month low
The gilt crisis has pushed the pound to a 14-month low against the US dollar. “The combination of a robust dollar and a weakening pound is accelerating the capital flight from sterling,” says Nigel Green, chief executive of advisory and asset management firm the deVere Group.
He adds that investors are “turning to safer currencies and assets, as the UK appears increasingly fragile in this turbulent environment”.
Consumers are already staring down the barrel of cost increases this year after changes announced in the Autumn Budget. Chancellor Rachel Reeves hiked employer National Insurance contributions – a change that will kick in from April – in an attempt to balance the state’s books.
Oil prices put further upward pressure on bond yields
The increase “comes amid renewed concerns amid supplies of crude after the US slammed more sanctions on Russia”, says Streeter. “These are targeted at vessels and tankers, which is aimed at disrupting trade with China and India, leading to expectations of higher demand from suppliers in the Middle East”.
Annuity rates rise further
“The latest data shows a 65-year-old with a £100,000 pension can now get up to £7,425 a year from a single life level annuity with a five-year guarantee,” says Helen Morrissey, head of retirement analysis at Hargreaves Lansdown. “This is up from £7,235 a year last week and up a whopping 48% on the £5,003 that was on offer this time three years ago.”
Mortgage rates edge up - will they rise further?
Nicholas Mendes, mortgage technical manager at the broker John Charcol, tells MoneyWeek: "Increased government borrowing and ongoing economic uncertainty have pushed gilt yields higher, which in turn drives up swap rates. Lenders are absorbing these increased costs for now, but they can only do so for a limited time before being forced to adjust their mortgage products."
Frances Haque, chief economist at Santander UK, agrees that mortgage lenders “may well – in the short-term - nudge up pricing to reflect the higher swaps”.
Yields spike sees investor gilt purchasing increase
Unlike in the wake of 2022’s infamous mini-budget, the current gilt selloff isn’t a sudden thing, but has been brewing steadily since the autumn.
Last week – as gilt yields reached highs not seen since 2008 – gilt purchases reached their highest level in a week by Hargreaves Lansdown investors since October.
“Given the increase in yields, it’s not a surprise we are seeing a spike in gilt purchases,” said Hal Cook, senior investment analyst at Hargreaves Lansdown. “The yield on the 2-year gilt at the end of December was around 4.37% but is now pushing 4.6%. And it was nearer 4.2% at the start of December. For the 5-year gilt, the story is the same – it was yielding about 4.05% at the start of December, 4.33% at the end of December and nearer 4.65% today. Looking back to the end of 2023, the 2-year gilt yield was around 4% and the 5-year nearer 3.5%.”
That's all from us today. Thanks for following all our coverage of the gilt rates story as it unfolds. Stay tuned for future updates.
Reeves to address Parliament
Today’s big news: chancellor Rachel Reeves will answer questions in the Commons today for the first time since returning from a trip to China, the timing of which was criticised by political opponents for coinciding with a week of volatility for the pound and soaring yields on UK bonds. She returned from her trip on Monday as concerns mounted that the government is in danger of failing to meet its own fiscal rules.
Will Rachel Reeves be sacked?
In the manner of a Premier League manager on a dire run of results, Rachel Reeves received the full backing of her boss prime minister Keir Starmer, yesterday – though only once the cameras were off. At an earlier televised press conference, he avoided making any firm guarantees about her future.
Speculation is rife that Reeves’ position as chancellor could be under threat. Both the Telegraph and the Independent are asking who could replace the chancellor if the situation doesn’t improve, while the Daily Star has revived its infamous lettuce that symbolised the demise of Liz Truss’s premiership.
Former shadow chancellor John McDonnell told the Today programme that further spending cuts would “be politically suicidal” for Reeves. The fiscal rules she set herself ahead of Labour’s election win appear to have boxed her into a corner.
Chancellor Rachel Reeves is expected to make a Commons statement about her visit to China after 12.30pm today, where she will no doubt face questions about the spike in gilt yields.
BREAKING: Reeves addressing Parliament
The chancellor's statement is essentially a rationale behind her decision to visit China last week, as gilt yields were spiking. Her opening speech is concentrating on the importance of the UK's trading relationship with China.
Her opening line stated that "growth is the number one mission of this Labour government".
The questions that follow, though, are likely to focus on the implications of higher borrowing costs on the UK economy and Reeves' economic policies.
Stride finishes his opening statement by asking Reeves which of her promises she will break should the OBR judge that she has breached her fiscal rules in March.
The chancellor has reiterated her commitment to her fiscal rules. There hasn't been a direct response to the question of where she'll give way should the OBR rule in March that she's breached them.
What can policymakers do about higher gilt yields?
- Muddle through until the spending review on 26 March before announcing new tax/spending plans;
- Announce potential tax increases before the spending review, in the event that the OBR finds she has broken her fiscal rules;
- Front-run the spending review by pre-announcing lower public spending.
So far Reeves is sticking to option 1, but if her hand is forced into a change of approach Gregory thinks that 3 is more likely than 2 given yesterday’s commitment to be “ruthless” in spending review decisions.
It isn’t just Reeves with the power to respond, though. The Bank of England is another key component in the gilt yields mix.
“The situation is more straightforward for the Bank,” says Gregory. “If there are no clear signs of dislocation in the bond market, the Bank will wait until the next Monetary Policy Committee meeting on 6th February to cast its judgement on the outlook for interest rates.
“But should there be clear signs of significant dislocation in the bond markets… the Bank could say it will do whatever it takes to keep markets functioning smoothly and remind investors of the tools at its disposal. If that doesn’t work, it could take temporary and specific action to restore orderly market conditions, by buying gilts as it did in October 2022 and pausing Quantitative Tightening (QT) (i.e. selling gilts). QT would then continue once market functioning is restored.
“To be clear, this is a last resort. The Bank won’t pause or cancel QT unless there is clear dislocation in bond markets.”
Chancellor to fast-track growth strategy announcement
The BBC says the Chancellor is likely to bring forward the detail of a range of new growth strategies in the next few weeks as she promises to move “faster and further” on the economy.
Morgan Stanley: Short GBP positions highest since November
“Overall, Options data suggest that tactical investors are long USD (DXY), while being most short GBP and EUR,” said the note.
That's all on gilt yields for now. Thanks for following so far. We'll continue to follow the story here at MoneyWeek.
BREAKING: gilt yields fall on surprise inflation dip
Yields on 10 year gilts have dropped to around 4.84% this morning – the lowest they’ve been so far this week.
Respite for the government
“A lower-than-expected inflation print will provide some relief to the recent sell off in gilts that we’ve seen so far this year,” says Mark Hicks, head of active savings, Hargreaves Lansdown.
“The surprise fall in inflation offers much-needed respite for the government after a tumultuous week for gilts,” says Myron Jobson, senior personal finance analyst at interactive investor.
Scott Gardner, investment strategist at J.P. Morgan owned digital wealth manager, Nutmeg, says “policymakers and treasury officials will be breathing a small sigh of relief as new data shows that inflation fell during the final month of 2024, beating market expectations.
“While it might be odd to be welcoming above target inflation, these results have grown in significance after an unstable start to the year for the pound and government borrowing,” he adds.
Gilt yields fall further
UK inflation data has clearly calmed the gilt markets – for now. However, US inflation data will be released this afternoon. That will likely have a strong impact on gilt yields, given how closely they have been correlated with Treasuries in recent months.
Bad news for the pound?
Gilt yields have fallen back below 4.80%. Corks won’t yet be popping at the Treasury (especially as US inflation data later today could reverse the momentum), but there will be some deep sighs of relief.
However, while the inflation reading has calmed the gilt market, it’s not such good news for the pound, which has fallen slightly against the dollar this morning.
“The dip in headline inflation, particularly in services, will be welcomed by the Bank of England but leaves the pound vulnerable to further weakness as it reinforces the case for additional rate cuts,” says Nikos Tzabouras, senior financial writer at Tradu. “Such action is undoubtedly needed amid weak economic activity and soaring borrowing costs, especially with UK debt exceeding 98% of GDP.”
Further weakening of the pound could create its own inflationary momentum – but aggressive monetary easing appears unlikely at this stage, which has helped the pound find a degree of support.
Gilt yields fall further as US inflation data lands
US inflation rose to 2.9% during December, according to the latest release from the US Bureau of Labor Statistics. That’s slightly higher than FactSet analysts had expected, but matches expectations of economists polled by Reuters.
Government bond yields fall in US and UK
10-year gilt yields have continued to fall throughout the day. They even dipped below 4.7% this afternoon – though have now climbed back up to around 4.72%. It means that the gains over the last week that prompted Parliamentary panic have largely been reversed, though they will have to fall a good deal further before chancellor Rachel Reeves will be feeling comfortable about her borrowing plans.
“Following both the UK and US CPI numbers, there has been a bit of respite in both gilts and USTs,” says Oliver Faizallah, head of fixed income research at Charles Stanley.
Underscoring the fact that the government bond yield saga is far from over, though, Faizallah adds that “in the US, concerns around an inflationary government policy and large deficits will likely keep yields elevated for some time.”
That's all from us today. Thanks for following the blog - and if you haven't already done so, pop over to our other one covering today's inflation data to get up to speed there!
Good morning, and thanks for following our gilt yields blog over the last week or so.
10-year gilt yields have come down from their recent peak; today, they’re around 4.64%. They are still at generational highs, though, which will be a concern for the government.
We’re going to wrap our live coverage of the gilt yields story here for now. However, we’ll leave you with this explainer on what gilts are, and whether or not now is a good time to invest in them.
That’s far from the end of the live blogs on MoneyWeek though. Join us on Monday for live coverage of Donald Trump’s return to the White House.