UK sells £4 billion of government debt at highest yield since 2007
Sunday, July 9, 2023
The United Kingdom's (DMO) 4 billion in government debt as two-year Wednesday with an average annual of 5.668%, the highest since June 2007.
In the UK, the DMO issues gilts, called '' in other countries, as to finance the government's spending when it exceeds the revenue generated from taxation.
Despite strong demand, with bids for the gilts totalling over £11 billion, returns were pushed to a fifteen-year high because, media reported, traders believed the Bank of England (BoE) would continue raising interest rates, and because of high inflation devaluing returns.
On June 22, the Bank'supped its in the thirteenth consecutive rise from 4.5% to 5% after "significant upside news in recent data that indicates more persistence in the process".
That day, HSBC asset strategist Joseph Little told Reuters the BoE may increase its main interest rate to up to 6% because "[i]nflation pressures show more persistency and more momentum than other Western economies, and that forces the Bank into a corner". Reuters additionally reported investors believed rates would climb to about 6.25% sometime December before falling.
The effect of higher interest rates is that the same gilts with aof October 2025 sold for an average yield of 4.874% last month and for 3.634% in January. However, bond specialists told Reuters last week the gilts were "one of the cheapest bonds on the UK fitted ".
UK inflation held at 8.7% in May, contrary to forecasts, while, which excludes certain consumables like food and energy, increased to 7.1% from 6.8% in April, a high not seen since 1992. The BoE consequently revised its projection that by the end of 2023 inflation will come down to about 5%, not 4%.
In June 2007, the UK offloaded £2.5 billion worth of five-year gilts with an average yield of 5.790%.
At 08:17(0717 UTC) Thursday, the yield on two-year gilts was 5.429%, while the ten-year gilt at 08:19 was 4.548%.
- "U.K. 10 Year Gilt" — , July 6, 2023 (date of access)
- "U.K. 2 Year Gilt" — , July 6, 2023 (date of access)
- Jack Barnett. "Yield on fresh UK government debt hits highest level since 2007" — , July 5, 2023
- William Farrington. "UK gilt sale highlights soaring cost of government debt" — , July 5, 2023
- David Milliken. "UK sells government bond with highest yield since 2007" — , July 5, 2023
- "RESULT OF THE SALE BY AUCTION OF £4000 MILLION OF 3½% TREASURY GILT 2025" — , July 5, 2023 (PDF)
- David Milliken, Suban Abdulla. "Bank of England hikes rates to 5% in surprise move to tackle stubborn inflation" — , June 22, 2023
- Philip Inman. "UK government debt rises above 100% of GDP for first time since 1961" — , June 21, 2023
- "What is the UK inflation rate and why is it so high?" — , June 21, 2023