Market Talk Roundup: Jump in U.K. Gilt Yields Sparks Concerns Over Government Finances

Selling of long-dated U.K. government bonds, or gilts, continues Wednesday, with the 30-year gilt yields rising to levels unseen since late 1990s for a second consecutive day. The 10-year gilt yield hits its highest level since 2008, while sterling also falls. Weak demand at Tuesday's auction of 30-year gilts triggers the initial move, which comes as concerns about the U.K. economy increase. Markets worry that a lasting increase in gilt yields could weigh on U.K. public finances. The following is a selection of analyst comments.

U.K. Sovereign CDS Spreads Unchanged Amid Jump in Gilt Yields

1533 GMT - U.K. sovereign credit default swaps, which insure against the risk of default, remain unchanged at relatively low levels despite yields on thirty-year U.K. government bonds, or gilts, jumping to their highest since the late 1990s. The 5-year U.K. CDS remains at 21 basis points, a level traded throughout most of December and well below the 36 basis points traded a year ago, S&P Global Market Intelligence data show. "This is not a sovereign crisis," ING analysts say in a note. "The selloff in gilts [U.K. government bonds] looks to be more a function of factors peculiar to the bond market than investors demanding a risk premium of U.K. assets." They note that the U.K. 5-year sovereign CDS has moved little over the last month. (jessica.fleetham@wsj.com)

Sterling's Fall Could Prove Limited in Absence of Sovereign Crisis

1449 GMT - Sterling is unlikely to fall much further, even after the 30-year U.K. government bond yield hit its highest since 1998, as this isn't a sovereign crisis, ING analysts say in a note. "The selloff in gilts looks to be more a function of factors peculiar to the bond market," they say. Sterling's weakness looks largely due to a trimming of previous long positions, which bet on it rising. Sterling was the only long position investors were prepared to run against the dollar late last year due to a high one-week deposit rate and as the U.K. is considered less exposed to U.S. tariffs, ING says. Sterling falls to an 8.5-month low versus the dollar of $1.2321. (renae.dyer@wsj.com)

Sterling, Gilts Fall as Jump in 30-Year Yields Hits Sentiment

1427 GMT - Sterling and U.K. government bonds, or gilts, fall as yields on 30-year gilts reaching their highest since 1998 adds to negative sentiment building since late 2024, Rabobank's Jane Foley says. December's downward revision to U.K. third-quarter economic growth to zero was "taken as a bad omen," she says. Higher yields and slower growth could be bad news for U.K. Treasury chief Rachel Reeves, risking more tax hikes and even slower growth. The U.K. is "in danger of falling into a cycle of negative economic news." GBP/USD falls to an eight-and-a-half-month low of 1.2321; EUR/GBP hits a six-week high of 0.8352, according to FactSet. Thirty-year gilt yields reach 5.375%, Tradeweb data show. (renae.dyer@wsj.com)

Rising U.K. Gilt Yields Could Weigh on Private Sector Economic Activity

1200 GMT - Rising U.K. gilt yields could begin to crowd out private sector economic activity, Peel Hunt's Kallum Pickering says in a note. Ten-year gilt yields hit their highest since 2008 on Wednesday, while 30-year yields their highest since the late 1990s for a second consecutive day. The U.K.'s plans for a partly debt-financed fiscal expansion should support growth over the medium term, but it's a risk, the chief economist says. "If the resulting rise in bond yields reduces private economic activity, it could turn out to be a badly judged policy choice." Rising bond yields push up government borrowing costs and pose a problem and could force U.K. finance minister Rachel Reeves to raise taxes further or cut public spending, he says. (emese.bartha@wsj.com)

Gilt Yields Edge Up After Five-Year Bond Auction; 30-Year Yields Hit Fresh Multiyear High

1144 GMT - Yields on five-year U.K. government bonds, or gilts, rise after an auction of new five-year bonds. Thirty-year gilt yields hit their highest since 1998 for the second day running as the market faces hefty gilt supply at the start of 2025. Concerns linger also about the U.K.'s budget, which proposed high borrowing to fund investment. "The budget has basically left markets with a lot of supply," says TD Securities strategist Pooja Kumra in a note. The five-year benchmark gilt yield rises to 4.523%, from 4.434% before the auction, Tradeweb data show. Wednesday's auction resulted in an average yield of 4.490%. The 30-year gilt yield--which jumped after a weak 30-year gilt auction Tuesday--hits a new high of 5.341%. (jessica.fleetham@wsj.com)

Sterling Dented by U.K. Growth Concerns

1041 GMT - Sterling is among the worst performing G-10 currencies in the past week due to concerns about a weaker U.K. economic outlook, Ebury's Matthew Ryan says in a note. Reports that major retailers are expecting to raise prices or reduce hiring due to the U.K. government's plans to raise employer national insurance tax is leading to some jittery trading, he says. "This has been most prominently reflected in the bond market, with fears over the chancellor's borrowing plans sending the 30-year gilt year to its highest level since 1998 this week." The impact of higher rates on the economy, particularly via mortgages, shouldn't be underestimated, he says. GBP/USD falls 0.2% to 1.2448 but EUR/GBP trades flat at 0.8289. (renae.dyer@wsj.com)

Rise in 30-Year Gilt Yields Could Be Overdone

0901 GMT - The recent rise in U.K. 30-year gilt yields could be overdone, TD Securities says in a note. It refrains from reading too much into Tuesday's weak 30-year gilt auction, after which 30-year yields hit their highest since the late 1990s at 5.247%, according to Tradeweb. Flow data point to fewer buyers rather than active sellers, suggesting there should be demand to buy gilts "at current attractive yield levels," senior rates strategist Pooja Kumra says in a note. The weak auction was mostly due by the Debt Management's choice of 30-year supply in the first week of the year. Still, Kumra says the rise in gilt yields "has failed to see any respite in the last few months." (emese.bartha@wsj.com)

U.K. Gilts Attractive for Long-Term Investors Despite Rise in Yields

1500 GMT - U.K. government bonds, or gilts, still present an attractive opportunity for long-term investors despite a recent jump in yields, says Quilter Cheviot's Richard Carter in a note. The yield on the 30-year gilt yield rose to its highest level since the late 1990s at 5.218% on Tuesday. Gilt yields are currently "well above expected inflation levels, making them a viable option for those looking to secure returns in a sluggish economy that might prompt further rate cuts by the Bank of England," Quilter's head of fixed interest says. For investors with a lower risk appetite, short-dated gilts are promising too and are less sensitive to market fluctuations, he says. (emese.bartha@wsj.com)

Gilt Yield Rise Raises Fears About State of U.K. Public Finances

1432 GMT - The sharp rise in yields on U.K. government bonds, or gilts, in recent weeks is bad news for the government as it stokes fears about the state of public finances, Quilter Cheviot's Richard Carter says in a note. The prospect of rising inflation resulting from the incoming U.S. Trump administration's policies is leading to rising yields in the U.S., and consequently in the U.K. as well, he says. "The Bank of England remains cautious about slashing interest rates too aggressively, and the tepid demand from investors at the latest gilt sale underscores the uncertainty in the market." The short-term outlook is particularly unpredictable ahead of Trump's inauguration on Jan. 20, adding to the volatility, he says. (emese.bartha@wsj.com)