Key gilt auction three times over-subscribed
By Abigail Townsend
Date: Tuesday 14 Jan 2025
(Sharecast News) - A closely-watched auction of government debt was three times over-subscribed, the Debt Management Office confirmed on Tuesday.
According to the DMO, it received bids totalling £3.06bn in an auction of £1bn of 1.25% Index-linked Treasury Gilt 2054.
The auction came amid turmoil across the UK and US government bond markets.
A number of issues have coalesced, including concerns about the impact of incoming US president Donald Trump, growing pessimism about the strength of the UK economy, sticky inflation and interest rates likely staying higher for longer.
Gilt yields have risen as investors become more nervous about lending. As a result, UK government borrowing costs have risen, leaving chancellor Rachel Reeves at risk of breaking her own fiscal rules. The pound has also weakened in recent days.
However, the latest auction suggests interest from investors remains robust.
Reeves is due to address Parliament later on Tuesday about a recent trip to China, when she will likely be quizzed about mounting government borrowing costs and the wider bond market turmoil.
Andrew Wishart, senior UK economist at Berenberg, said: "Most, but not all, of the rise in the 10-year gilt yield, from 4.0% at the start of the fourth quarter 2025 to 4.9% now reflects that the market is now pricing in our view that cost-push inflation will stop the Bank of England from cutting interest rates more than twice in 2025.
"In October, markets were pricing in a reduction in Bank Rate to 3.5% by the end of year. Now investors anticipate only one or two cuts, to 4.25% or 4.5%.
"The UK bond sell-off is more worrying than that in the US, due to the simultaneous fall in the pound. That points to some genuine capital flight.
"Lingering international investor concern following the ill-fated Liz Truss mini budget of September 2022 and Brexit have led investors to treat UK assets with caution."
Email this article to a friend
or share it with one of these popular networks:
You are here: news
10 Lower Thames St,
London EC3R 6EN