he yield on a 10-year gilt — seen as a key benchmark for risk-free lending and for the strength of the UK economy as a whole — soared to the highest level since 2008 today.
As of Thursday afternoon, the 10-year gilt is yielding 4.66%, higher even than the levels reached during the mini-Budget crisis.
Shorter-dated gilts had reached the highest level since 2008 in recent weeks on the back of stickier-than-expected inflation data, which has led to concerns that the Bank of England will keep interest rates higher for longer. Two-year gilts are now cllose to exceeding levels reached atr any point in 2008, and could even rise to the highest rate since 1999.
However, the 10-year gilt carries additional significance as it is seen as the benchmark for “risk-free” lending. It is often used as a general proxy for the strength of the UK economy, is widely held by pension funds and plays a role in the pricing of mortgage rates.
Joshua Mahony, chief market analyst at Scope Markets, said: “UK 10-year yields have pushed into levels not seen since the 2008 crisis, with questions around the UKs ability to drive down inflation bringing further upside for long-term yields.
“The recent rise in rates and inflation has been a clear reason to see short-term yields rise, but we are also seeing the likes of the 10-year surge as concerns over a ‘higher-for-longer’ monetary policy outlook becomes evident as the UK struggles to contain inflation. Between ‘higher-for-longer’ rates, stubbornly high inflation, and a slugging growth picture, it should come as no surprise to see the 10-year yield elevated to reflect long-term concerns.”
The US Federal Reserve’s minutes yesterday sent gilt yields climbing this morning. Surprisingly strong jobs data this afternoon then led to an additional surge, taking the 10-year gilt to levels not seen since before the Global Financial Crisis.
Markets believe Bank of England interest rates are likely to peak at 6.5% early next year, with a slim chance of hitting as high as 7%. Rates are then expected to stay above 6% until late 2024.
