UK 10-Year Gilt Yield Crosses 5% for First Time Since 2008
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- UK 10-year gilt yields crossed 5.00% on Friday, the highest level since the 2008 financial crisis, jumping ~15 basis points in a single session.
- 2-year gilt yields rose ~19 basis points to ~4.602%, their highest in more than a year, as the short end repriced for imminent BoE rate hikes.
- The sell-off has been swift: yields are up ~68 bps on the 10-year and ~97 bps on the 2-year in the 15 trading days since the Iran conflict began.
- Bank of England MPC voted unanimously Thursday to hold rates, citing a "new shock to the economy," yet LSEG data shows markets now price near 0% chance of a 2025 cut and at least two hikes to 4.25% by year-end.
- The UK already had the highest borrowing costs of any G7 nation before the war, with 20- and 30-year gilts trading above 5%, leaving Chancellor Rachel Reeves with shrinking fiscal headroom.
- February public borrowing of £14.3 billion ($1.74 billion) came in higher than expected, adding fresh selling pressure on Friday.
- deVere Group's Nigel Green called the move "an understandable repricing of risk" driven by energy feeding into inflation, while Polar Capital's George Godber urged calm given the conflict's unknown duration.
Why it matters: UK Chancellor Rachel Reeves built her fiscal credibility on low borrowing costs, and 10-year gilts crossing 5% directly raises debt servicing while Britain's energy import dependence makes it uniquely exposed to the Hormuz blockade. With markets now pricing at least two BoE rate hikes and the UK already the highest-borrowing-cost G7 nation, her room for energy and household support spending narrows at the worst possible moment.
