UK 30-Year Gilt Yields Reach Highest Since 1998 as Fed Rate Bets, Oil Prices Weigh

British long-dated government borrowing costs climbed to multi-decade highs on Thursday, with 20- and 30-year gilt yields touching levels last seen in 1998, as a fall in US jobless claims reinforced expectations that the Federal Reserve will raise interest rates.

The 30-year gilt yield peaked at 5.925%, up 4 basis points on the day, while the 20-year yield reached 5.890%. The move tracked a similar rise in US Treasuries. Ten-year gilt yields were more than 6 basis points higher at 5.348%, a level last recorded in July 2007, near the onset of the global financial crisis.

The rise adds to the pressure on new finance minister John Healey ahead of his first annual budget statement next month.

Short-dated yields had already risen sharply on Wednesday after oil prices exceeded $100 a barrel for the first time in six weeks, and extended gains on Thursday as crude climbed to $105 a barrel following the seizure of a port by Yemen's Iran-aligned Houthis.

Unlike the European Central Bank, which delivered a long-expected rate increase on Thursday, the Bank of England is expected to keep rates steady at next week's meeting. However, market bets for a November move have risen and are now priced in as close to a 90% probability, despite Governor Andrew Bailey telling a parliamentary committee on Tuesday that such a move would only occur if British inflation pressures intensified more than he thought likely.

Susannah Streeter, chief investment strategist at investment provider Wealth Club, said the move higher in gilt yields largely reflected global trends. "Steamy energy prices appear to be the trigger for these latest moves higher in yields, but there's been an underlying structural shift in the global flow of money for some time as some of the world's biggest institutional investors rotate away from (U.S.) Treasuries to seek returns in corporate debt," she said.

Two-year gilt yields rose 9 basis points from Wednesday's close to 4.813%, their highest since November 2023, while 5-year yields hit their highest since July 2023 at 4.904%, up 10 basis points.

The rise in yields came as the UK Debt Management Office released the result of an auction of £5 billion ($6.78 billion) of 4.625% May 2030 gilts, which drew a robust £16.2 billion in bids. The 2030 gilt sold at an average yield of 4.786%, the highest for a gilt in that maturity range since October 2023. On Tuesday, benchmark 30-year gilts sold at a syndication with the highest yield since at least 1998.