UK sells £4 billion of government debt at highest yield since 2007

From Wikinews, the free news source you can write!
Revision as of 07:32, 6 July 2023 by JJLiu112 (talk | contribs) (+ 6 categories using HotCat)
Jump to navigation Jump to search

This article is being developed. You can contribute or discuss its development.
If it is ready to be checked, you can Submit for review.
This is not a way to ask others to expand or finish the article!
You should review discussion about this article, and verify original reporting notes are adequate. Click to add OR notes.

This article is being developed. You can contribute or discuss its development.
If it is ready to be checked, you can Submit for review.
This is not a way to ask others to expand or finish the article!
You should review discussion about this article, and verify original reporting notes are adequate. Click to add OR notes.

Thursday, July 6, 2023

In May, the UK's debt-to-GDP ratio topped 100% for the first time since 1961. EY ITEM club adviser Martin Beck told The Guardian June 21: "Higher inflation combined with higher short- and long-term interest rates will significantly increase the level of debt interest payments".
Image: Madeleine Liu.
Related articles
Collaborate!

The United Kingdom's Debt Management Office (DMO) sold £4 billion in government debt at auction as gilt-edged securities yesterday with an average annual yield of 5.668%, the highest since June 2007, during the Great Recession.

Gilts, or 'bonds' in other countries, are securities issued by the DMO to finance spending when a government's expected outlay exceeds the revenue generated from taxation.

Despite strong demand, with bids for the two-year gilts totalling over £11 billion, returns were pushed to a fifteen-year high yesterday because traders believe the Bank of England (BoE) will continue raising interest rates, and because of high inflation that devalues returns.

On June 22, the Bank's Monetary Policy Committee upped its bank rate in the thirteenth consecutive rise from 4.5% to 5% after "significant upside news in recent data that indicates more persistence in the inflation process".

That day, HSBC asset strategist Joseph Little told Reuters the BoE may increase its main interest rate up to 6% because "[i]nflation pressures show more persistency and more momentum than other Western economies, and that forces the Bank into a hawkish corner". Investors now believe rates will peak at about 6.25% sometime December.

The effect of higher interest rates is such that the same gilts, with a maturity of October 2025, sold last month had an average yield of 4.874%, and 3.634% in January. However, NatWest bond experts told Reuters last week the gilts were "one of the cheapest [on] the UK fitted curve".

Inflation unexpectedly held at 8.7% in May, while core inflation, which excludes certain consumables like food and energy, increased to 7.1% from 6.8% in April, its highest since 1992. The BoE now projects inflation to come down to about 5% by the end of 2023, not the 4% originally hoped.

In June 2007, the UK offloaded £2.5 billion of five-year gilts at an average yield of 5.790%.

At 08:17 BST today, the yield on two-year gilts was 5.429%, while the ten-year gilt at 08:19 was 4.548%.


Sources

Retrieved from "https://en.wikinews.org/w/index.php?title=UK_sells_£4_billion_of_government_debt_at_highest_yield_since_2007&oldid=4735802"