"The bond market is flashing red” as UK gilt yields hit 27-year high

Long-term borrowing costs in the UK have surged to their highest level in almost three decades as experts warn “the bond market is flashing red”.

The 30-year gilt yield in the UK has risen to around 5.67% – that’s the highest since 1998 and has sparked renewed concerns about the UK’s fiscal position.

The move piles pressure on Chancellor Rachel Reeves ahead of the Autumn Budget, as higher yields mean the government must pay more to borrow.

This risks creating a vicious circle where rising debt costs undermine confidence further, pushing yields up again.

The spike mirrors moves in other countries, with German long-dated bond yields also hitting multi-year highs, but experts say the UK’s fiscal outlook and debt profile make it more vulnerable than peers.

Financial experts warned the jump in gilt yields is a warning shot to the government to present credible fiscal plans in the Budget.

David Belle, Founder and Trader at Fink Money, said the UK is in a worse place than other countries.

He said: “This is bad for the UK since new debt will have to be issued at a higher cost. But it's not isolated to the UK. Already this week, the German 30-year bond yield hit the highest level since 2010. 

"The problem, though, is the profile of the UK's debt, which alongside the country's fiscal issues, is worse than in other countries. On top of this, the Bank of England is protected on its bond losses by the taxpayer, a protection no other central bank has. 

"Tax rises will do nothing, as they're going to hit the productive side of the economy, which will change incentives for productive activity.

So the Labour Party should have ignored its student politics back benchers when it came to welfare cuts, because that is one of the largest issues the UK is struggling with.”

Samuel Mather-Holgate, Independent Financial Adviser at Swindon-based Mather and Murray Financial, called it a “shocking indictment” of government policy.

He said: “This is a shocking indictment of a government that is over a year into its plan to turn the British economy around. The choices Reeves has made to fill her 'black hole' have been devastating to the prospect of growth. 

"The National Insurance hikes to employers have ensured that employment is not rising at the levels needed to make significant improvements to the country's GDP. 

"Borrowing costs for the UK continue to rise and this means even less money for Reeves who has an ever increasing spending list, so growth really is the only solution. 

"She needs a rethink on her plan for change, or Starmer needs a reshuffle. The markets used to like better the devil you know, but sometimes a fresh face and new thinking is needed when dogmatism takes over.”

Rob Mansfield, Independent Financial Advisor at Rootes Wealth Management, said the UK has maxed out its credit cards.

He said: “The bond market is flashing red – warning the government that the credit limit is being reached. What we need from the Chancellor is an effort to reduce spending, which doesn't seem likely politically. 

"Her other course of action could be to demonstrate a credible plan of how spending will come down in the long run. This has been hinted at through AI investment but the market isn't yet buying it and so there is more work to do here.”

Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, warned the UK is edging towards an economic crisis.

He said: “UK 30-year gilt yields have reached levels not seen since 1998, tracking rises in US Treasuries following Trump's attempt to fire Fed Governor Lisa Cook. The risk of further increases appears significant due to supply pressure from the government's near-record debt issuance plans, creating structural upward pressure on yields amid what appears to be an era of permanently higher global interest rates. 

"While not yet a full-blown crisis like 2022, the situation poses meaningful challenges. The UK already pays more servicing its debt than it spends on defence or education. 

"Surging gilt yields are piling pressure on Reeves and raising the prospect of further tax increases or spending cuts as the UK teeters on the brink of an economic crisis. With her own party thwarting attempts to even slow spending increases, Reeves finds herself hemmed in with limited options.”