The results of today’s two-year gilt auction laid bare the rising cost of government borrowing amid soaring interest rates and volatile economic conditions.
Data supplied by the UK Debt Management Office showed that investors demanded yields as high as 5.671% on two-year gilts, a coupon rate last seen in 2007.
The average coupon rate for the £4bn sale of gilts due in 2025 came to 5.668%.
In 2007, five-year gilt yields surged to 5.79%.
Gilts, otherwise referred to as bonds, have an inverse price relationship with their yields, meaning buyers are refusing to pay higher amounts for holding these bonds.
Buyers are pricing in the likelihood of a 6% peak interest rate, following the largely unexpected 50-point rise to 5% in June.
Higher near-term yields can also be a sign that markets are pricing in a recession.
At the time of writing, the yield on a two-year gilt on the open market was 5.33%, while the 10-year gilt yield was 4.44%.
