Britain sells £4.5 billion of bonds at highest yield since 2008
Key Facts
The UK Debt Management Office sold £4.5 billion of bonds maturing in 2032 on Oct. 27, at an average accepted yield of 5.036%, the highest since 2008 for a five-year UK issue, Reuters reported. The sale came on the eve of the UK budget presentation on Oct. 28, alongside publication of the Office for Budget Responsibility’s updated fiscal forecasts. Bids totalled £15.816 billion, or 3.51 times the issue size, indicating strong demand for government bonds. Reuters said strong demand had been typical during the year. The auction came as public finances faced pressure from higher borrowing costs and ahead of investors’ assessment of the government’s fiscal outlook.
Accepted yields ranged from 5.033% at the highest accepted price to 5.039% at the lowest, and the auction tail was 0.3 basis points. The DMO allocated £3.825 billion to competitive bids, compared with £675 million to gilt market makers. It also gave successful bidders the option to buy up to an additional £1.125 billion after the initial allocation. These figures show how the bonds were distributed among participant groups, alongside the demand reflected in the cover ratio. Reuters said a global bond sell-off and higher borrowing and energy costs linked to the Iran war had added to pressure on the UK budget.
UK public sector borrowing reached £24.5 billion in September, up £1.8 billion, or 7.7%, from September 2025, and £1.9 billion above the Office for Budget Responsibility’s forecast. The Office for National Statistics said spending, including higher debt interest, rose faster than revenues, as inflation effects fed through to the accounts. In the financial year through September, borrowing was £97.8 billion, £4.4 billion, or 4.3%, below the same period a year earlier. But it remained £6 billion above the OBR’s forecast. The gap between the monthly and cumulative figures highlights that lower borrowing than a year ago did not prevent an overshoot of fiscal forecasts.
Debt interest payable by central government was £10.9 billion in September, up £1.6 billion, or 16.6%, year on year, and £2 billion above the OBR’s forecast. Public sector net debt exceeded £3 trillion for the first time at the end of September, according to an initial ONS estimate. Crossing the threshold means nominal debt reached a new record, while borrowing data measure the flow of financing over a specified period. The Bank of England said UK government bond yields and U.S. Treasury yields had reached levels not seen since 2008 in its September assessment. The bank attributed the increases to higher interest rate expectations and rising term premia.
The Bank of England warned that persistently high sovereign debt yields could tighten financing conditions for households and businesses and limit advanced economies’ ability to respond to future shocks. UK consumer price inflation rose to 3.5% in the 12 months to September, from 3.1% in August, while the inflation measure that includes owner-occupiers’ housing costs increased to 3.6% from 3.3%. The Office for National Statistics said transport, particularly motor fuels, made the largest upward contribution to the monthly change in both annual inflation rates. These readings link price pressures with financing costs in the period leading up to the budget. The Bank of England had announced a multi-year path to reduce its gilt holdings at an annual pace of £20 billion, in addition to maturing bonds, while considering a mechanism for selling some bonds to the government.
Markets are awaiting the Monetary Policy Committee’s decision on Nov. 5, with the current interest rate at 3.75%. The next inflation data are due on Nov. 18, followed by public finance figures on Nov. 20. After the budget, a Reuters poll of bond traders expects a limited £3.4 billion increase in the 2026/27 financial year gilt issuance plan, taking the median forecast to £249.6 billion. By contrast, traders expect total financing requirements in 2027/28 to rise by a larger £27 billion compared with the March forecast, to £334 billion. The poll pointed to a further shift away from long-dated bonds, with their share of total issuance expected to fall to its lowest level since 1990.