UK government long-term borrowing costs have continued a marked recent easing after two months of extreme volatility. Earlier this week, prices hit their highest point since 1998. This massive increase raised alarms on a massive scale among financial market analysts as well as policymakers. The yield on 30-year UK government bonds, or gilts, dropped all the way to 5.55%. This reduction follows after it reached a height of 5.75% on Wednesday.
For the past few months, we’ve seen the effective yield on 30-year gilts climbing dramatically. Geopolitical tensions and elevated levels of government borrowing have added to this burden. Consequently, market fears about the longer-term sustainability of UK government finances have accelerated. Bank of England Governor Andrew Bailey took on some of these concerns in a recent appearance before the Treasury Committee.
Governor Bailey remarked on the elevated yield levels, stating, “quite a high number but it is not what is being used for funding at all at the moment actually.” His comments speak to the growing concern over how far governments should go with financing strategies as market conditions shift increasingly quickly.
The upward pressure on yields has not been limited to the UK bond market. In the US, 30-yr Treasury bond yields have jumped up to their highest levels in over a month. US president Donald Trump’s trade war is a major part of the story. She noted that they’ve imposed additional stressors on the US bond market by increasing fears around unsustainable debt and inflation linked to tariffs. Fears about the continued independence of the Federal Reserve have added to these pressures.
As the UK market navigates these complexities, Bailey added, “there is now considerably more doubt about exactly when and how quickly” financial conditions may stabilize. This extraordinarily confounding statement reflects the distrust that is currently holding UK and US markets in a vice grip. All of them are responding to an accelerating global economic environment.