Chancellor Rachel Reeves (pictured) was seen as a 'potential culprit', after 30-Year gilt yields stood at 5.34% today (9 January), while the 10-Year gilt yields were 4.79%. Rachel Reeves Kirsty O'Connor / Treasury
The latest rise in UK gilt yields has revealed markets' concerns about the UK government's ability to manage its debt, as investors look for a culprit.
According to data from MarketWatch, 30-Year gilt yields stood at 5.34% today (9 January), while 10-Year gilt yields were at 4.79%.
In addition, this morning the pound fell to its lowest level against the US dollar in 14 months, hitting a low of $1.2239 before slightly recovering to $1.23 at the time of reporting.
Treasury steps in to defend Reeves' borrowing amid gilt market selloff
The Treasury has since stepped in to quell markets' concerns, rejecting claims that higher debt costs had limited Chancellor Rachel Reeves's headroom for borrowing and calling such worries "pure speculation".
Russ Mould, investment director at AJ Bell, said the latest market turmoil signals a "massive loss of confidence in the UK government".
"The 30-Year gilt yield briefly hit 5.445%, surpassing the Liz Truss crisis period, and the pound slumped to $1.2257 against the US dollar which is the lowest level since November 2023," Mould added.
The optimism following last summer's UK general election has since dissipated and quickly "turned to gloom, as companies brace themselves for higher costs and consumers worry about job security and the cost of living going up again", the investment director said.
Laith Khalaf, head of investment analysis at AJ Bell, pointed to Chancellor Rachel Reeves as "one potential culprit" for the elevated bond yields.
"Reeves' maiden Budget was marginally inflationary, and did increase overall government borrowing, but since the beginning of October, the US and UK 10-Year bond yields have tracked upwards almost hand in hand," Khalaf noted. "Those who think the current bout of bond market jitters is down to policies announced in the Budget need to explain why there has been such correlation in the upward march of bond yields both here and in the US."
However, despite the drop in the value of the pound, Mould argued that the UK currency remains "considerably stronger" than in 2022, when former prime minister Liz Truss's Mini Budget sent bond markets on a spiral.
"The UK is also not alone in seeing a higher cost of borrowing for the government, as the US has also seen higher yields," Mould highlighted.
David Roberts, co-portfolio manager of the Nedgroup Investments Global Strategic Bond fund, noted that concerns about the current market meltdown range from "Trump tariff-induced inflation to finding funding for essential services such as education and health".
'Bad news' for Labour as surging gilt yields puts pressure on government's debt management
Khalaf himself also noted that rising UK bond yields are more likely down to Trump than Reeves' borrowing plans.
"There are no easy answers to the question of why markets move, especially over a short time frame, and sometimes it is simply a matter of momentum," AJ Bell's head of investment analysis said. "However, the fact yields are rising on both sides of the Atlantic does suggest the new year has brought with it a focus on the incoming US president, and the potential for his trade and immigration policies to be inflationary, which has implications for both economies.
"Bond investors might also be looking at the giant stacks of government debt already on the books on both sides of the pond and saying thanks, but no thanks."
