UK 10-year borrowing costs hit 19-year high as oil prices surge

Key facts

• UK 10-year gilt yields reached 5.527% on Thursday, surpassing a previous high of 5.51% set last week.
• Twenty-year gilt yields hit 6.00% and 30-year gilt yields reached 6.05%, both highest since early 1998.
• Brent crude oil prices rose 5% to $105 a barrel, the highest since September 29.
• The increase in gilt yields is attributed to rising oil prices and concerns over US oil production.
• Market expectations for interest rate hikes from the Bank of England, ECB, and Federal Reserve have increased.

British long-term borrowing costs surged on Thursday, with 10-year gilt yields reaching their highest level since July 2007 at 5.527%. This rise, part of a global bond selloff, was triggered by a sharp increase in oil prices, which jumped 5% to $105 a barrel amid attacks on shipping in the Gulf and concerns over potential disruptions to US oil production from a hurricane. Twenty-year and 30-year gilt yields also climbed to their highest levels since early 1998, reaching 6.00% and 6.05% respectively.

The intensified inflation concerns, exacerbated by the oil price surge, are reinforcing expectations of further interest rate hikes from major central banks. Swaps markets are now pricing in over 100 basis points of Bank of England rate increases by the end of next year, with similar upward revisions for the European Central Bank and the Federal Reserve.

Meanwhile, UK Chancellor John Healey has scheduled the fiscal statement for October 28, a month earlier than last year, to limit policy speculation during the ongoing party conference season.