The UK sold 20-year inflation-linked debt at the highest borrowing costs in more than 20 years in an environment of rising bond yields.<\/p>\n
The Debt Management Office (DMO) said on Thursday that it had carried out its latest bond auction to raise \u00a3800 million of inflation-linked gilts at a yield of 2.41 per cent, the highest on that type of asset since 2001.<\/p>\n
Inflation-linked gilts, known as \u201clinkers\u201d<\/a>, are pegged to the UK\u2019s retail price measure of inflation<\/a> and protect against price rises by adjusting the bond\u2019s principal and coupon in line with inflation. <\/p>\n Investors have been dumping government bonds across the developed world amid fears over inflation, high interest rates and rising debt burdens. <\/p>\n The UK\u2019s 30-year gilt yield hit a fresh 27-year peak<\/a> on Tuesday but bond prices have since rallied. Yields on long-term bonds fell another 0.02 percentage points on Thursday to 5.59 per cent after hitting a high of 5.74 per cent earlier in the week. Equivalent bond yields<\/a> in Germany, France and America also fell back from recent highs. Yields rise when a bond\u2019s price falls.<\/p>\n The UK\u2019s latest gilt auction attracted strong investor interest, with the \u00a3800 million inflation-linked issuance receiving bids in excess of \u00a33 billion. The DMO said this was the highest bid ratio on linkers since 1998. On Tuesday, the DMO issued a conventional ten-year gilt which was also in demand, generating bids of more than \u00a3140 billion. <\/p>\n Bond investors are snapping up UK debt in an environment of rising long term interest rates, where the government is having to pay a premium to issue bonds<\/a>. This week\u2019s ten-year gilt auction was sold at the highest yield since the financial crisis in 2008. Bonds pay a fixed coupon to investors.<\/p>\n \u2022 David Smith: High borrowing costs are a verdict on the UK economy<\/b><\/a><\/p>\n