The UK\u2019s long-term borrowing costs hit a new 27-year high as the government was forced to pay a premium on newly issued bonds over fears about the chancellor\u2019s ability to rein in the public finances. <\/p>\n
Yields on Britain\u2019s 30-year debt rose by as much as 0.06 percentage points on Tuesday morning, hitting 5.7 per cent, the highest level since 1998. <\/p>\n
Borrowing costs on two and ten-year bonds also jumped by 0.03 percentage points and the pound was on course for its worst day in three months as part of a synchronised selling of UK assets that reflects fears about the public finances before the autumn budget<\/a>. <\/p>\n The sell-off in UK assets coincided with the Treasury\u2019s latest gilt auction, which attracted record investor interest for a ten-year bond. The government will pay a premium of 0.082 percentage points over the existing benchmark to raise \u00a314 billion in debt. Orders for the bond, maturing in 2035, exceeded \u00a3140 billion as investors rushed to lock in a decade of attractive returns. <\/p>\n Mark Dowding, chief investment officer at RBC BlueBay Asset Management, said rising borrowing costs and a weak currency \u201creflected concerns that further tax increases from already high levels could damage growth, add to inflation and still leave a sizeable hole in the public finances. <\/p>\n \u201cMarkets appear less focused on Treasury rhetoric and more on whether the government can present a credible plan to control spending.\u201d<\/p>\n Investors also dumped US and European government bonds, with ten-year US Treasuries, a benchmark for the White House\u2019s borrowing costs, the worst performers, gaining 0.06 percentage points. <\/p>\n \u2022 Long-term bonds pass pressure of higher yields on to governments<\/b><\/a><\/p>\n French bond yields were most affected on the Continent, gaining 0.05 percentage points before a vote of confidence in the government of Fran\u00e7ois Bayrou<\/a> next week. Bond yields rise when prices fall. <\/p>\n The pound slid by 1.3 per cent against the dollar to a three-week low of $1.34 and shed 0.7 per cent against the euro to \u20ac1.16. The dollar gained against most major trading currencies. <\/p>\n The climb in long-term gilt yields will put renewed pressure on the government, whose reshuffle of ministers in the Treasury and appointment of a new economic adviser for the prime minister have done little to quell worries about the sustainability of the UK\u2019s public finances. <\/p>\n The debt to GDP ratio is close to 100 per cent and Rachel Reeves<\/a> needs to find tens of billions of pounds from savings or tax rises to hit her fiscal rules in the budget. The 30-year gilt yield has risen by 0.6 percentage points since the start of the year and has become a proxy for worries about fiscal policy as short-term interest rates have fallen. <\/p>\n