(Sept 8): The UK is set to pay its highest borrowing costs on a debt sale since at least 1998 as a global bond sell-off sent yields surging and squeezed the government’s finances.

The country is marketing the benchmark-sized January 2056 bond at around 0.75 to one basis point over the yield of the government’s 2055 gilt, according to people familiar with the matter who asked not to be identified. That would be the highest yield for any gilt sale since the Debt Management Office was created in 1998.

UK yields are hovering around the highest levels in decades after a global bond sell-off hit gilts hardest among major developed nations in the past weeks. Concerns about an energy-induced inflation shock, growing government deficits and the impact of large sales of corporate debt by companies involved in the artificial intelligence boom were behind the move.

The UK’s deal, which is expected to price later Tuesday, is a tap of £5.9 billion (RM32.3 billion) bonds originally sold in May 2025 at a yield of 5.405% — a record for a syndication at the time. The offering is expected to raise as much as £5 billion according to Megum Muhic, a strategist at RBC Capital Markets. The yield on outstanding 30-year gilts was at 5.83% on Tuesday, after hitting the highest since May 1998 last week.

Other nations have also paid elevated rates to borrow recently. Last month, the US sold 30-year bonds in an auction at the highest interest rate since 2001 and Germany paid the most since 2011 in a syndicated deal. The UK sold £900 million in 25-year index-linked gilts at a record yield of 2.496% last week.

Higher borrowing costs are pressuring UK Chancellor John Healey ahead of next month’s budget. Bloomberg Economics estimates that the government’s financial wiggle room under its fiscal rules has been halved from £23.6 billion since the spring — because of the rise in bond yields. 

In his first major speech as Britain’s chancellor, Healey said he would build on his predecessor’s efforts to reestablish the UK’s credibility in international bond markets. Fiscal discipline “underwrites every promise this government makes,” he said on Monday.

UK public sector net debt as a share of gross domestic product has risen from about 85% in the 2019-20 financial year to just over 94% at the end of July, the highest burden since the 1960s, according to the Office for National Statistics. Spending on debt interest totaled £7.7 billion in July, and 8p in every £1 spent by the government in the 2025-26 financial year went on debt interest, according to the House of Commons Library.

Prime Minister Andy Burnham said in September last year that Britain should not be “in hock to the bond markets,” but has pledged to stick to the UK’s fiscal rules, while seeking “flexibility,” since he entered Downing Street in July.

Bookrunners on the UK deal include BofA Securities, Goldman Sachs International Bank, JPMorgan, Santander and UBS Investment Bank.

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