Interest rate fears as Govt bonds rise to scary levels last seen in 2008 financial crisis
FEARS that interest rates will hit six per cent grew as gilt yields crept up higher than after Kwasi Kwarteng’s disastrous mini-budget.
The yield on ten-year gilts — otherwise known as government bonds — rose to 4.75 per cent.
They were at their highest since the global financial crisis of 2008.
The yield on a gilt is the interest rate the Government pays.
Last autumn, British gilt yields shot up to 4.5 per cent as investors were spooked by unfunded tax cuts and the financial soundness of then Chancellor Kwarteng’s plan.
The gilts have been closely watched during the past year’s economic rollercoaster ride.
They are seen as the best indicator for what money markets think will happen to interest rates.
High street lenders use them to price mortgages and other borrowings.
The gilt yields have risen amid worries about elevated interest rates around the world.
Traders are betting that the Bank of England will have to keep increasing rates to as high as six per cent.
Yields increase when the price of a bond falls because investors want bigger returns for owning a riskier asset.
Simon French, market analyst at Panmure Gordon, said investors were betting on an 85 per cent likelihood the Bank will raise rates by 0.25 per cent to 5.5 per cent next month.
It would be the 15th rate rise in a row and bring more pain for mortgage holders.
This week’s wage figures and inflation data cemented economists’ views that further rate increases will be required to bring down inflation.
Michael Hewson, analyst at CMC Markets, said: “It’s now less about how many more rate hikes are coming, more about how long we could see rates staying at these sorts of levels.”