UK pays 5.383% on 10-year gilts, highest since 1999

The UK government paid the highest interest rate since September 1999 on a sale of 10-year debt on Tuesday, when an auction of gilts maturing in 2036 cleared at an average yield of 5.383%, according to Theguardian.

The Debt Management Office sold £4.25bn of the new gilt, and the auction drew bids worth 3.34 times the amount on offer. Theguardian reported that the result followed months of bond market pressure, and that the government had already paid its highest rate since 1998 on a 30-year bond earlier in September. Higher yields feed directly into the cost of servicing the national debt, which sits alongside the government’s spending plans.

Also read: UK diesel nears record as Iran war lifts oil and rate-rise odds

Key facts

• The Debt Management Office sold £4.25bn of gilts maturing in 2036 at an average yield of 5.383%, the highest since September 1999.
• The auction attracted bids 3.34 times the amount offered, down from more than 3.6 times at last month’s sale, and the auction tail widened to 0.5 basis point from 0.1 basis point in August.
• The Bank of England reported that just 54,918 mortgages for new home purchases were approved in August, the lowest monthly total since December 2023, as mortgage rates rose.
• South West Water was fined more than £7.8m for environmental offences committed across Devon and Cornwall between January 2015 and July 2021, according to the Environment Agency.
• AstraZeneca made a $2 billion strategic equity investment in Summit Therapeutics to develop and test anti-cancer drugs.

Bond investors demand a higher price

The auction was on the weaker side, said Evelyne Gomez-Liechti, a multi-asset strategist at Mizuho International, as reported by Theguardian, who said investors remain reluctant to add duration despite attractive yield levels. The measure of demand used by Bloomberg, the ratio of bids to the amount sold, eased compared with August, and the gap between the average accepted price and the lowest accepted price also widened.

Bond markets have been unsettled for months, and the higher rates have begun to show up in the mortgage market. The Bank of England figures show the impact of rising borrowing costs, which Theguardian linked to oil prices pushed up by the war in Iran that began in late February, and to fading expectations of interest rate cuts. Mortgage rates rose again on Tuesday.

Also read: UK diesel hits 198.32p as Bailey warns on rates

Water, pharma and other UK business headlines

Water companies came under pressure in the equity market after Prime Minister Andy Burnham told the Labour Party conference in Liverpool that a ban on public ownership of water companies would be repealed, with Angela Eagle to bring a strengthened water bill to parliament. Shares in Severn Trent and Pennon Group dipped before recovering. South West Water, which is owned by Pennon, was separately fined over the sewage spills.

In the life sciences sector, AstraZeneca invested $2 billion in Summit Therapeutics, the Miami-based cancer drug developer co-founded in 2003 by Oxford professor Kay Davies and run by co-CEOs Bob Duggan and Dr Maky Zanganeh. On the AI side, Anthropic warned in an IPO document that advanced AI could pose existential risks to humanity, while OpenAI scrapped the release of a next-generation model after researchers raised safety concerns in internal testing.

Why it matters

The yield the government pays on new debt sets a benchmark for mortgages, corporate borrowing and household budgets, and Tuesday’s auction confirms that the UK’s borrowing costs are back at levels last seen before the turn of the century. A weaker cover ratio matters because it implies investors need more compensation to hold long-dated UK paper, which constrains the chancellor’s room for manoeuvre in the budget and raises the cost of any future issuance. The mortgage figures show the squeeze is already reaching buyers, with approvals at a 32-month low.

What to watch

The government’s budget next month, when the chancellor is expected to set out tax and spending plans. Investors will also watch whether the pledge to end the public ownership ban on water companies survives as costed Labour policy, and whether the Bank of England’s next rate decision responds to the rise in borrowing costs.

Written by

Benjamin

Benjamin Carter covers business, finance, and the stock market for StockPil, focusing on the trends and data that matter to everyday investors.

Source: The Guardian