UK pays highest borrowing rate since 1998 in 30-year bond sale
Newsflash: The UK has paid a record high borrowing cost to sell 30-year government debt this morning, as bond market turbulence puts pressure on the public finances.
The UK has sold £4.25bn of gilts maturing in 2056 at a yield, or interest rate, of 5.8168%, Reuters reports.
This appears to be the highest yield for any gilt sale since the UK’s Debt Management Office was created in 1998.
Significantly, it is above the 5.4047% yield which bonds of this type were sold for in May 2025.
It’s not a massive surprise, as last week’s bond market sell-off pushed up the yield on 30-year UK bonds to the highest since 1998. But such high borrowing costs will eat into the UK’s headroom to keep within its fiscal rules, adding to the challenge facing chancellor John Healey.
The bond sell-off has been caused by several factors, including fears that higher inflation will force central banks to lift interest rates, concerns that some countries are not controlling their spending, and competition from AI companies issuing debt to fund data centre rollouts.
Key events
Before today’s UK bond sale took place, strategists at RBC had said some investors might be wary of buying into long-dated debt due to last week’s global drops in fixed income prices, “which continues to reinforce the risk of trying to catch a falling knife here“.
However, they said UK-specific factors were more positive and had contributed to a narrowing of 10-year gilts’ yield premium over German debt.
About the UK’s ‘moron premium’….
The jump in UK borrowing costs has reignited talk that the UK is suffering from a ‘moron premium’ on its debt.
This term was coined by Dario Perkins of City research firm TS Lombard back in 2022 after Liz Truss’s mini-budget sparked a bond sell-off, and tends to be trotted out whenever UK bonds are under the cosh.
Yesterday, chancellor John Healey cited Liz Truss, austerity, and Brexit as causes of the UK’s borrowing challenges.
But, in a note titled “Diagnosing the cause of the UK’s moron premium”, Simon French of Panmure Liberum argues that the real cause of this excess yield premium is the UK’s inflation problem, due – he argues – to an inefficient supply side of the economy,,
French argues:
If something broke in the Gilt market in 2022, as Healey claims, then it was higher global inflation revealing the UK as a high beta economy for that theme.
Truss and Austerity did not make the UK economy high beta, and whilst Brexit did add inflationary frictions into the UK’s trading regime it has been less significant than the frictions created in domestic-orientated supply.
It would be easy to dismiss this as political framing from Healey, but for the fact that an honest diagnosis is necessary to unwind some of the luxury beliefs that gum up the supply side of the UK economy. “Control” – still an ill-defined concept by this government – will need to be a Trojan Horse for supply side reform if the UK government’s moron premium is to be reduced.
[‘high beta’ is a financial term for heightened volatility, such as a stock which moves up and down more rapidly than the wider market].
At least there were plenty of bids…..
Matthew Amis, investment director for rates management at Aberdeen Investments, is encouraged that there was strong demand for UK debt at today’s sale – even though buyers demanded a high interest rate.
Amis explains:
“With rising government bond yields, in particular long-end maturity bonds, today’s 30-year syndication was a key health check for the gilt market. UK long issuance has been much reduced in recent years, with the last 30-year syndication coming back in 2025.
“A poorly received gilt syndication would have put further pressure on gilt yields and in turn government finances. Despite this negative build-up, the re-opening of the 2056s gilt was well received by the market. UK primary issuance continues to be well-received and today’s syndication shows demand for gilts at these yields remains in good health.”
According to Reuters, the UK received more than £85bn of bids for the debt on sale, allowing it to choose the most attractive offers when selling £4.25bn of debt (however, even those offers can’t have been terribly eye-catching, as the UK agreed to pay such a high yield on this debt).
UK pays highest borrowing rate since 1998 in 30-year bond sale
Newsflash: The UK has paid a record high borrowing cost to sell 30-year government debt this morning, as bond market turbulence puts pressure on the public finances.
The UK has sold £4.25bn of gilts maturing in 2056 at a yield, or interest rate, of 5.8168%, Reuters reports.
This appears to be the highest yield for any gilt sale since the UK’s Debt Management Office was created in 1998.
Significantly, it is above the 5.4047% yield which bonds of this type were sold for in May 2025.
It’s not a massive surprise, as last week’s bond market sell-off pushed up the yield on 30-year UK bonds to the highest since 1998. But such high borrowing costs will eat into the UK’s headroom to keep within its fiscal rules, adding to the challenge facing chancellor John Healey.
The bond sell-off has been caused by several factors, including fears that higher inflation will force central banks to lift interest rates, concerns that some countries are not controlling their spending, and competition from AI companies issuing debt to fund data centre rollouts.
Gwyn Topham
The British government has signalled its backing for rail freight by setting a new target to grow the volume of goods carried on UK trains by 40% by 2040.
The target had been sought by private freight train operators concerned about their future under the new Great British Railways, where they will be competing for space on the tracks with publicly owned passenger services.
Transport secretary Heidi Alexander said GBR would have a “clear mission to help grow our economy by moving more of the goods British businesses rely on”.
She said the target would give the rail freight industry certainty to invest and support jobs across the country.
Meeting the target is expected to mean around £15bn more goods moved by rail annually, saving up to one million tonnes of CO2 a year by taking lorries off the roads, according to the Department for Transport.
The Railways Bill to set up GBR is now in the committee stage in the House of Lords, and will give the new arms-length body running the railways clear duties to support freight growth.
Maggie Simpson, director general of the Rail Freight Group, said the sector was “ready to fulfil government’s bold targets for growth, making an even stronger contribution to the nation’s productivity, development and resilience.”
In three hour time, MPs on the Treasury select committee will be quizzing the Bank of England’s top brass.
Professor Costas Milas of the Management School at University of Liverpool has some questions for them to fire at governor Bailey:
-
In light of turbulence (albeit receding) in bond markets, what Andrew Bailey and the MPC are planning to do for Quantitative Tightening (QT)? Will they continue with an annual pace of gilt sales of £70bn, or perhaps, they are more minded to slow down the pace?
-
Does Andrew Bailey and the MPC still believe that QT “inflates” UK yields by only 20 to 30 basis points? If this is still their view, in contrast to my BoE Staff Working Paper joint with Michael Ellington (Liverpool University) and Ryland Thomas (BoE) which finds a higher impact on yields of up to 40 basis points, why not continue with £70bn of QT also for the next 12 months? Not least because the lower the pace of QT, the lower the depressing impact of QT on inflation (our BoE paper finds that QT suppressed inflation by 1.4 percentage points).
-
How about the recent idea of swapping long-term debt with short-term one? This idea was put forward by e.g. Financial Times Alphaville yesterday which has the potential of relieving pressure on long yields.
[Reminder: QT is the process of selling bonds which the Bank bought during recent crises]
Optimism among US small business owners has dropped, as they are hit by rising prices.
The NFIB Small Business Optimism Index dipped in August to 98.7, down 1.1 points compared with July.
NFIB chief economist Bill Dunkelberg explains:
“Uncertainty remains elevated among small business owners as they face a mixed set of challenges with weakened sales, supply chain disruptions, and inflation pressures.
“While expectations for the overall economy dimmed, Main Street owners remain largely positive in the health of their own businesses.”
Gas prices highest since 2023
Ouch! European gas price have continued to rise, and are at their highest levels since January 2023.
The month-ahead UK gas price is now up more than 3% at 188p a therm, over the highs seen yesterday.
Continental European prices are also the highest since January 2023, at €75.70 per megawatt hour, which will fuel fears of a winter gas crisis in Europe.
South Africa’s economy shrinks in Q2
Newsflash: South Africa’s economy is on the brink of recession after contracting in the second quarter of this year.
New data shows that South Africa’s GSP fell by 0.2% in April-June, ending a run of six quarters of growth in a row.
Mining, trade and manufacturing drove down economic activity on the production side of the economy, while a sharp rise in imports and subdued investment constrained growth on the expenditure side, reported South Africa’s statistics body, adding:
Following six straight quarters of growth, the trade industry wobbled in the second quarter, shrinking by 1.9%.
This was due to a decline in wholesale trade, motor trade and the food & beverages industry. Consumer activity remained relatively upbeat, reflected in stronger retail trade and accommodation. Motor trade was dragged lower by softer fuel sales, but new vehicle sales continued to strengthen.
Middle East developments are “clouding the outlook again”, reports Achilleas Georgolopoulos, senior market analyst at Trading Point:
Yemen forces took over from Iran, attacking Saudi Arabian oil facilities, confirming that, despite reports of an imminent agreement between Oman and Iran about the Strait of Hormuz, the termination of the seven-month-old regional conflict remains elusive.
Expectations that the US President might try to sort out this conflict soon, so he can almost entirely focus on the critical November 3 midterm elections that could upset the current balance in the Senate, have yet to be confirmed.
Oil is the focal point for markets today, reports Neil Wilson, Saxo UK investor strategist, with bond yields up and stocks trade broadly lower.
Brent crude trades higher for a third straight session, approaching $100 amid reports that Yemen’s Iran-backed Houthis have hit energy facilities in Saudi Arabia. Operations at energy sites near to Yemen have been halted.
It comes after reports that Saudi Aramco’s Jizan refinery was hit, whilst Iran said it’s close to doing a deal with Oman to manage the waterway. With Brent approaching $100 markets are pricing in a longer war and more disruption to global energy markets. Brent rallied +2% to above $99, where it’s closed the gap to the 24 July close.
A sense today of disruption and conflict being a feature rather than a bug, and the implications for global markets that follow from structurally higher inflation dynamic alongside fiscal pressures. It’s unclear whether there is a way out for Trump here. Look for a breach of $100 to potentially get driven up on technical momentum to $102, the 23 July peak.
UK mortgage rates highest since June
UK mortgage rates have risen again today, as the recent bond market turbulence hits borrowers.
Data provider Moneyfacts reports that the average two-year fixed residential mortgage rate is at its highest since 7 June, while the average five-year is at its highest since 10 May.
This follows the rise in swap rates last week, which made it more expensive for lenders to borrow.
Here’s the details:
-
The average 2-year fixed residential mortgage rate today is 5.65%. This is up from 5.63% the previous working day.
-
The average 5-year fixed residential mortgage rate today is 5.70%. This is up from 5.68% the previous working day.
Lenders are also withdrawing some products from the market. There are currently 7,417 residential mortgage products available, down from 7,485 yesterday.
Philip Scott, partner, banking & finance at legal firm Walker Morris, has warned that businesses should be concerned too:
“The recent increase in bond yields and market expectations of higher interest rates is not just a concern for homeowners. Businesses across the UK should also be paying close attention because movements in the wider debt markets ultimately influence the cost and availability of corporate finance.”
“For companies with existing facilities approaching maturity, refinancing may become more expensive than anticipated. Businesses considering acquisitions, capital investment or expansion plans may also find that the economics of those projects look different as borrowing costs rise.”
“While lenders remain open for business, we are likely to see greater scrutiny around cashflow forecasts, leverage levels and covenant compliance. In that environment, preparation becomes increasingly important.”
Oil over $99 a barrel…
Oil is getting jolly close to the $100 a barrel mark, for the first time since July.
Brent crude, the international benchmark, is now up 2.2% and just touched $99.25 a barrel.
Novartis shares slide after drugs trial disappointment
Swiss pharmaceuticals group Novartis is heading for its worst day on the stock market ever, after releasing disappointing medical trial data.
Novartis reported this morning that its experimental drug for a muscle wasting disorder failed in a late-stage study.
The drug is called del-desiran. Novartis had been testing whether it helped patients with myotonic dystrophy type 1 (DM1), but found that it did not demonstrate statistically significant improvement versus a placebo.
Shreeram Aradhye, president, development and chief medical officer, Novartis, explains:
“Despite decades of research, there are still no approved treatment options for DM1, and patients and caregivers continue to face a significant daily burden.
“Developing therapies for a complex disease like DM1 remains challenging, and setbacks are part of scientific progress. As we continue to evaluate the full HARBOR dataset, we remain committed to identifying the most appropriate development path for the del-desiran program and advancing innovative approaches for people living with DM1 and other serious neuromuscular diseases.”
Novartis’s shares are down 10%, which would be their biggest daily fall on record.
The company was created by the merger of Swiss chemical and pharmaceutical companies Ciba-Geigy and Sandoz in 1996. The Sandoz family remain its third-largest shareholder, through their Foundation, founded by sculptor and painter Édouard-Marcel Sandoz.
