The United Kingdom has successfully sold £4.25 billion worth of five-year bonds, marking the biggest bond auction in ten years. This significant issuance reflects strong investor demand and confidence in the UK’s financial stability.
The UK Treasury has conducted its largest sale of five-year bonds in more than ten years as Chancellor Rachel Reeves faces escalating pressure from increasing borrowing expenses.
Yesterday, the UK Debt Management Office (DMO) auctioned £4.25 billion in new debt, occurring just a day after long-term government borrowing costs surged to their highest levels since 1998.
Yields on five-year gilts have climbed nearly 35 basis points since the start of last month, reaching approximately 4.45%. Meanwhile, 30-year gilt yields have soared to their highest point in over a quarter-century.
In today’s auction, the DMO sold five-year gilts at an average yield of 4.49%, which is the return the Treasury offers to investors purchasing its debt.
Economists have cautioned that Chancellor Reeves is on the verge of breaching her fiscal rules and may be forced to implement another tax increase as bond yields continue to rise.
Capital Economics highlighted that the rise in borrowing costs has depleted £8.9 billion of the Chancellor’s £9.9 billion buffer, jeopardizing her ability to maintain a balanced budget by 2029/30 as mandated by her fiscal rules.
Economists Ruth Gregory and Alex Kerr commented, “There is a significant chance that the Office for Budget Responsibility (OBR) will determine that Chancellor Rachel Reeves is on track to miss her primary fiscal rule when it updates its forecasts on March 26.”
