Reeves Faces Pressure as UK Debt Costs Approach Highest Levels Since 1998
UK Chancellor Rachel Reeves is under pressure as borrowing costs near 25-year highs, raising concerns ahead of upcoming bond sales
UK, Rachel Reeves, Debt Costs, Bond Sales, Gilts
London: The UK is feeling the heat as long-term borrowing costs are hitting levels we haven’t seen in over 25 years. Chancellor Rachel Reeves is really under the gun to keep things steady, especially with a bunch of bond sales coming up this week.
On Monday, the yield on 30-year gilts jumped a bit, reaching 5.19%. That’s super close to the 5.21% spike we saw earlier this year and almost back to the late ’90s levels. Investors are getting jittery since the Labour government just announced a hefty borrowing plan in the October budget, which has folks worried about the country’s growing debt.
Reeves’ spending plans have stirred up a bit of a selloff in gilts, pushing the benchmark 10-year yield up by about 40 basis points since late October. Pooja Kumra from Toronto Dominion Bank mentioned that the budget is really affecting the whole market, especially with all the new supply expected in the first quarter.
It’s a tricky situation for the government. They’re trying to keep debt investors happy while also shaking off the bad vibes from former PM Liz Truss’ mini-budget disaster last year. Back in October, bond vigilantes sent a warning when yields spiked due to fears of bigger debt auctions.
Reeves has a strict rule that she can’t borrow for everyday spending by 2029-30, but with only £9.9 billion of wiggle room, that rule might get tested soon. Investors are gearing up to take on about £6.5 billion in five and 30-year gilts this week, plus the Bank of England is also selling off some securities.
Even US Treasuries are feeling the pressure, with yields hitting a 14-month high as they prepare for their own bond sales. And on top of that, traders are scaling back their bets on interest rate cuts from the Bank of England this year, which isn’t helping the situation.
UK homeowners are also feeling the pinch from these rising borrowing costs. Mortgage approvals in November dropped to their lowest since August, which is a real setback for the government’s goal of building 1.5 million new homes over the next five years.
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