UK 10-Year Bonds Auction Today: May Hammer at 5.41%, Auction Yield Could Hit Highest Level Since 1999

According to Golden Ten Data APP, the UK government will pay the highest yield since 1999 in an upcoming 10-year bond auction, as investors demand an additional premium to compensate for persistent inflation and the possibility of increased spending in next month’s budget.

The UK Debt Management Office (DMO) plans to issue up to £4.25 billion ($5.6 billion) in bonds with a 4.875% coupon, maturing in July 2036, on Tuesday. Last month’s sale of the same security recorded an average yield of 5.16%, already the highest level in nearly two decades.

Since then, the 10-year UK bond yield has climbed further, hitting a 19-year high of 5.38% on Monday. On Tuesday, the yield stood at 5.41%.

The surge in UK government bond yields is part of a broader rise in global borrowing costs, as high energy prices fuel concerns that inflation will remain elevated for longer, forcing central banks to tighten policy further. In addition, markets are worried about the scale of public borrowing and the resulting increase in the debt-servicing burden.

Richard Carter, head of fixed income research at Quilter Cheviot Limited, said, “The borrowing data remains extremely challenging, and there is no sign of easing tension in the Middle East, so energy costs will stay elevated.” “Unless the growth outlook changes suddenly, the desire for fiscal discipline may be disappointed.”

The UK may pay the highest 10-year loan interest rate since 1999

In the UK, traders expect the Bank of England to raise interest rates in November and have priced in up to five hikes by the end of 2027.

Meanwhile, the October 28 budget will be a high-stakes moment for Chancellor John Healey, who has been trying to reassure investors that Prime Minister Andy Burnham’s government will keep a tight rein on spending. On Monday, he made every effort in his first budget to pledge fiscal restraint.

Nevertheless, higher yields continue to attract some investors. Last month’s 10-year bond auction was over 3.6 times oversubscribed, the strongest demand since April 2020. UK government bonds may also be supported by a Bank of England decision to pause its quantitative tightening (QT) program and stop selling long-term bonds to the market.

Bids for this bond auction will close at 10:00 a.m. London time, with results to be announced afterward.