UK Borrowing Costs Near 19-Year High as Global Bond Sell-Off Spreads
The yield on 10-year UK gilts rose to 5.38% by mid-morning on September 24, 2026, approaching a 19-year high set the previous week. The Guardian
Gilts are UK government bonds, and the yield is the interest rate the government pays to borrow. The move reflected a global sell-off in government bonds. It put upward pressure on UK borrowing costs one month before a budget from Chancellor John Healey.
Healey succeeded Rachel Reeves as chancellor. The government was headed by Andy Burnham, with Andrew Bailey as Governor of the Bank of England.
Reeves had built up £24bn of headroom against fiscal rules at the March 2026 spring statement. Headroom is spare room under self-imposed limits on borrowing and spending. Analysts believed recent yield increases had wiped out more than half of that headroom. The buffer is shrinking.
The pressure was not confined to Britain. On September 24, yields on 30-year US Treasury bonds surged to 5.444%, the highest level since 2004. The US benchmark had risen beyond 5% on September 15 amid the sell-off.
On September 11, the 10-year US Treasury yield stood around 4.94%, its most elevated level since 2023 and approaching its highest since 2007. It then stabilised, with the 10-year yield down 0.03 percentage points at 4.92%. On September 1, German government bond yields hit their highest level in 15 years amid the global sell-off.
A volatile September for gilts
September had already tested the gilt market repeatedly. On September 1, 30-year gilt yields hit 5.89% at one point, up 10 basis points, while 10-year yields rose 10 basis points to about 5.25%. A basis point is 0.01 percentage points. Later that day they eased to 5.85% and 5.21% respectively.
On September 2, the 10-year yield jumped to just below 5.3% in early trading. On September 10, ten-year yields jumped by 10 basis points to 5.378%, the highest since July 2007. Reuters
Market pricing on September 24 pointed to the same tight range. As of 09:14 BST, the 10-year yield was quoted at 5.37, up 0.016 points on the day, and up 14.94% from one year earlier.
Separate intraday data listed an open of 5.3524%, a day high of 5.373%, a day low of 5.329% and a previous close of 5.3511%.
The early-September spike took 30-year borrowing costs to their highest level since 1998 as part of an international bond sell-off. On September 8, the UK Treasury paid 5.82% to borrow £4bn through a 30-year bond, the highest interest rate on a 30-year bond since 1998.
Policy has responded at the long end. On September 17, the Bank of England paused sales of British government bonds for the next six months and halted sales of long-dated gilts entirely. Reuters The Bank had left interest rates on hold at 3.75% in the week before September 24. In that vote, six policymakers voted to leave rates on hold and three voted to raise rates.
Energy, inflation and a warning from Warsaw
Deputy Governor Clare Lombardelli, one of the six who voted to hold, warned on September 24 that the longer elevated energy prices persist, the more likely UK interest rates will have to rise. She spoke at an economic conference in Warsaw, Poland, identified as the Sixth Biennial Conference on Macroeconomic Policy.
Lombardelli said the energy shock due to the conflict in the Middle East is likely to keep pushing UK inflation higher in the coming months. The Bank expected a 24% rise in the quarterly energy price cap determining household utility bills in January if oil prices remain high.
She noted material uncertainty about the size and duration of the shock, and said monetary policy should not respond mechanically to movements in energy prices.
She added nuance on the inflation mix. Businesses have proved more resilient to higher energy costs than the Bank expected. Strong demand for AI components is already pushing up global export prices. Weather-related shocks add upside risks to inflation, while trade diversion is reducing inflation.
The broader context here is a collision between market pricing and fiscal arithmetic. Higher gilt yields raise debt servicing costs directly and compress headroom measured against self-imposed fiscal rules. That leaves a new chancellor with narrower options: raise revenue, restrain spending, or recast the rules. None of those choices alters global term premia, the extra return investors demand to hold longer-term bonds.
Looking at what this means for the weeks ahead, two variables will dominate. The first is oil and the pass-through to the January price cap and headline inflation. The second is whether the Bank's pause in gilt sales steadies the long end or merely defers supply the market must still absorb.
