Statistics show that in 2023, UK Government bonds are at a 25-year high.
While it’s over a year since Britain’s economy was plunged into crisis after 2022 prime minister Liz Truss recommended tax cuts in her mini budget, the recent selling flurry of bonds has skyrocketed the cost of borrowing, inducing a higher bond market than that of last year at the time of her announcement.
Yields for UK treasury bonds, defined at the rate that the UK government pays at to borrow, have spiked to approximately 4.6 per cent for ten-year bonds, while yields for 30-year bonds have reached 5.1 per cent, the highest they have been since the year 1998.
UK banks employ this rate for a major benchmark to fix rates on commercial loans. As a result, this means that the cost of borrowing is not only rising for the government, but for businesses too. Both five-year and two-year treasury yields are utilised to set mortgage rates, and have also seen a hike rising to levels which have not been recorded in more than a decade.
The Treasury issues bonds at a specific interest rate that relates to a set value. Investors purchase the bonds and then the government employs the money to fund its spending. As it is a loan, the UK government must not only repay investors, but must also pay interest on each bond until it is repaid. This payment is what makes up the yield.
UK consumers seeking information on bonds and other investment vehicles can contact wealth managers for financial advice in Chester, Sheffield, and other UK cities.
