Gilt yields have reached their highest level since Liz Truss’ mini-budget crisis

Yesterday, government bond yields surpassed the 5-percent level and reached their highest point ever since the Bank of England intervened in the debt markets to stop the fallout from Liz Truss’ mini-budget as well as a fire sale of pensions.

The 30-year gilt yield hit 5.020 percent, its highest level since briefly topping 5.1 percent on October 12, last year. The yield on the UK 20-year gilt was also quickly pushed to a high of 4.961 percent, which is close to an all-time high. The yield on the benchmark ten-year UK gilt also rose sharply.

The figures for gilts, a type of government debt, came after European and UK bond yields increased rapidly at the end of last weekend as traders accepted that central banks would keep interest rates high for longer in order to control inflation. The returns on American Treasury bonds soared to their highest point since 2007.

The recent rise in UK gilt yields has taken them to a new high of over 5 percent for the first since the mini-budget announced after September 2022. The 30-year gilt yield peaked on October 12th, a day after Andrew Bailey (Bank of England Governor) informed pension funds of the end of the emergency bond-buying program implemented by the Bank to calm down the markets.

Last year, the Bank intervened in an emergency situation after a fire sale of government bonds to raise money for a small segment of the pension industry — called liability-driven funds — and to meet margin requirements.

Yesterday, yields on 30-year gilts were over 5% — the highest level since 1998. Catherine Mann, who is a Bank rate-setter in its monetary committee, has contributed to the sell-off of bonds by indicating that she favors a return to rate increases. She claimed that the Bank underestimated consumer spending and needed a “more restricting monetary policy”.

The Bank of England held the Bank Rate at 5,25 percent last month. This was the first time in 14 meetings that the Bank has done so.