UK sells £4 billion of government debt at highest yield since 2007
July 10, 2023, 0:40:02 CEST | Wikinews

Sunday, July 9, 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.

Economy and business

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The United Kingdom's Debt Management Office (DMO) auctioned off £4 billion in government debt as two-year gilts Wednesday with an average annual yield of 5.668%, the most lucrative since June 2007.

In the UK, the DMO issues gilts, or bonds, as securities to finance spending when it exceeds the revenue generated from taxation.

Despite high demand according to Reuters, with bids for the gilts totalling over £11 billion, returns attained a fifteen-year high because, Reuters reported, traders believed the Bank of England (BoE) would continue raising interest rates, and because of high inflation devaluing 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 might increase its main interest rate to 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". Reuters said Wednesday investors believed rates would climb to about 6.25% sometime December before falling.

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

UK headline consumer price index inflation held at 8.7% in May contrary to forecasts, while core inflation, which excludes certain consumables like food and energy, increased to 7.1% from 6.8% in April, a high not seen since 1992. The BoE then projected by the end of 2023 inflation would come down to about 5%, not the original 4%.

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

At 08:17 BST (0717 UTC) Thursday, the yield on two-year gilts was 5.429%, while the ten-year gilt at 08:19 was 4.548%.

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Sister links[edit]

2021–2023 inflation surge
2021–present United Kingdom cost-of-living crisis
United Kingdom national debt
"U.K. 10 Year Gilt" — MarketWatch, July 6, 2023 (date of access)
"U.K. 2 Year Gilt" — MarketWatch, July 6, 2023 (date of access)
Jack Barnett. "Yield on fresh UK government debt hits highest level since 2007" — City A.M., July 5, 2023
William Farrington. "UK gilt sale highlights soaring cost of government debt" — Proactive Investors, July 5, 2023
David Milliken. "UK sells government bond with highest yield since 2007" — Reuters, July 5, 2023
"RESULT OF THE SALE BY AUCTION OF £4000 MILLION OF 3½% TREASURY GILT 2025" — United Kingdom Debt Management Office, July 5, 2023 (PDF)
David Milliken, Suban Abdulla. "Bank of England hikes rates to 5% in surprise move to tackle stubborn inflation" — Reuters, June 22, 2023
Philip Inman. "UK government debt rises above 100% of GDP for first time since 1961" — The Guardian, June 21, 2023
"What is the UK inflation rate and why is it so high?" — BBC News, June 21, 2023

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