Bond Market Turbulence Sends UK Borrowing Costs Soaring

UK borrowing costs reached a 28-year high after renewed turbulence on bond markets. Yields on 30-year UK bonds, also known as gilts, climbed above 5.92%, their highest level since 1998, while 10-year gilt yields rose above 5.29%, the highest since 2008.

The higher cost of borrowing adds to the pain already being felt by households facing rising energy bills and shop prices. Rachel Springall, a financial data provider at Moneyfacts, said that this does not bode well for borrowers, as lenders use swap rates as a key influence to reprice their fixed-rate mortgages.

The global bond market chaos has been sparked by investor concerns about inflation and global debt levels, fueled by the ongoing Iran war. The conflict has choked off energy supplies from the Middle East, leading to price spikes. Brent crude hit $97 a barrel on Wednesday, and European natural gas prices climbed to their highest level since 2023.

Experts warn that this volatility could feed through to borrowing in the real economy, including mortgage rates offered by banks to homeowners. David Hollingworth, associate director at broker L&C Mortgages, said that market concern over higher inflationary pressure means it's more likely that fixed mortgage rates will begin to rise.