Strong demand for five-year UK government debt on Wednesday morning came as borrowing costs continued to rise.
The cost of UK 10-year gilts climbed to the highest since the 2008 financial crisis in late morning and 30-year gilt yields rose above their multi-decade highs reached yesterday.
Tuesday's 30-year gilt auction had seen the lowest demand in over a year despite yields rising to a multi-decade high, with similar moves in the US and Europe.
This morning's 5-year auction from the UK Debt Management Office (DMO) found buyers for £4.25 billion of new debt at a yield of 4.49%.
Yields on 5yr UK debt have put on almost 35 basis points since early December, though still below where they were in the summer of 2023.
And 10-year debt rose to 4.784%, having been at 4.667% earlier this morning, reaching the highest levels since the summer of 2008.
Global bond moves
Bond yields are rising as the market lowers the probability of further central bank rate cuts this year, with US stock markets hit by a sharp shift in rate expectations yesterday.
US 10-year Treasury yields climbed to their highest since April and a US Treasury auction saw the highest issue yield for a 10-year auction since 2007, with the yield curve moved to the steepest it’s been since May 2022.
European yields saw a significant rise in response to US economic data, said Deutsche Bank macro strategist Jim Reid, who noted the UK 30-year yield was at its highest level since 1998.
"The problem for the UK government is that with yields where they currently are, they are close to breaching their own fiscal rules and as such may require additional tax rises," Reid said.
Yields can give market watchers clues about what investors are thinking about long-term debt, said Kathleen Brooks, head of research at XTB.
She noted that UK, US, French, German and Spanish 30-year yields have moved together over the last six months, with all yields picking up since the start of December, though those in France, the UK and the US have been moving at a faster pace than German and Spanish yields.
"This is significant since the UK, the US and France have far higher budget deficits than Germany and Spain, which could be why long-term bonds are selling off," Brooks said.
"Investors may be using the bond market to express displeasure at the high levels of government debt.
"This could force a rethink from governments and ultimately a scaling back of public spending or tax increases that could hinder growth."
Kallum Pickering, chief economist at Peel Hunt, said if bond yields rise further, UK Chancellor Rachel Reeves "may be forced to make the economically damaging decision of further increasing taxes or cutting back on planned public spending to balance the books".
In her first Budget last autumn, Reeves set fiscal rules including hitting a budget surplus by 2029/30.