Gilt yields – effectively the level of interest the UK government pays on its debt – fell to its lowest level since 2024.
Yields on 10-year gilts fell to 4.37% on 12 January, before edging up to around 4.39% the following day. The figure was above 4.4% for the whole of 2025; this time last year, they were approximately 4.9%.
“So far, 2026 has seen gilt yields fall,” said Hal Cook, senior investment analyst at Hargreaves Lansdown. “Most of the move was last week, but they fell a little further on Monday following relative UK strength compared to the US where Fed Chair Jerome Powell is – yet again – under attack from the White House.”
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Last year, a succession of gilt yield surges piled pressure on UK chancellor Rachel Reeves in the build-up to her Autumn Budget.
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But in the aftermath of the Budget, gilt yields fell as bond markets were reassured that Reeves had given herself extra fiscal headroom.
A gilt is a bond the UK government issues to borrow money. As with all bonds, gilt yields move in the opposite direction to their price.
In effect, when gilt yields fall, UK government bonds have increased in price – making it less expensive for the government to borrow.
How is the government bringing gilt yields down?
Bond investors like a credible borrower. Gilts are a mechanism through which the UK government borrows money. Just as any bank or building society would if you approached them for a mortgage, bond investors assess the creditworthiness of the UK government before they lend it money.
The UK hasn’t been viewed particularly well on that front (considering its position as one of the world’s largest economies) for some time, but the extra fiscal headroom carved out in the Budget gave Reeves a smidge of credibility.
But a persistent issue is oversupply. The UK government has £2.9 trillion worth of debt and pays £110 billion per year just on servicing the interest. This makes new gilts less attractive to potential buyers – there is already a lot of UK government debt in the market, and the amount it spends servicing that debt makes it a less credible borrower.
Compared to other developed economies, much of this debt is in long-dated bonds.
Bloomberg reported on 12 January that the government is taking active steps to reduce this long-dated debt. It is starting to issue more UK Treasury bills (T-bills).
What is a T-bill?
T-bills are short-dated government bonds. They mature after a minimum of one day and a maximum of 364, though according to Laith Khalaf, head of investment analysis at AJ Bell, most have a maturity of one month, three months or six months.
“Like Government bonds, or gilts, they are loans to the government and therefore have a very high level of safety, as you are guaranteed your money back unless the UK government defaults on its debts, which is extremely unlikely,” says Khalaf.
Unlike gilts, though, T-bills don’t pay any income. They are sold at a discount to their face value. When they mature, the government buys them back at their face value – meaning the investor pockets the difference between the two prices.
Earlier in January, the Debt Management Office (DMO) – the agency that issues gilts and other forms of government debt – said it was exploring the possibility of issuing more T-bills to reduce the amount of long-dated government debt.
“The increased flexibility that comes with issuing shorter-dated paper, particularly when there are concerns around longer-term debt affordability, are a plus,” said Cook. “It’s also positively viewed by a market that has fewer buyers of longer-dated gilts today than it did a few years ago.”
The government hasn’t yet increased its T-bill issuance, but bond markets appear to have reacted positively to the government’s intention of reducing the proportion of long-term debt on its books.
“It's for this reason that longer-dated gilt yields have fallen further than shorter-dated ones, with the 20-year yield dropping around 17bps since the start of last week,” said Cook.
