UK 30-year gilt yields surge to highest since 1998

By David Milliken

LONDON (Reuters) - British 30-year government bond yields surged to their highest since 1998 on Wednesday, catching up with a sharp overnight rise in 30-year U.S. Treasury yields driven by U.S. President Donald Trump hitting China with 104% tariffs.

The 30-year British gilt yield hit 5.507% at 0713 GMT, up 16 basis points on the day and pushing past a previous multi-decade high of 5.472% set in January.

On Monday 30-year gilt yields rocketed by almost 19 bps, the largest one-day rise since October 2022 in the aftermath of former Prime Minister Liz Truss' failed "mini-budget".

Ten-year gilt yields were 8 basis points higher at 4.69% at 0726 GMT, while two-year yields were down 9 bps at 3.87% as investors stepped up bets that the Bank of England would have to cut rates faster this year.

Interest rate futures price in 85 basis points in rate cuts by the BoE this year and see a rate cut of at least a quarter point on May 8 after the BoE's next meeting as a near certainty, with a roughly 10% chance of a bigger half-point move.

Before Trump detailed his tariff plans last week, markets saw only a 50% chance of a rate cut next month and just over 50 bps of loosening between now and the end of 2025.

Finance minister Rachel Reeves pushed back on Tuesday against suggestions that Trump's tariffs would require her to suspend fiscal rules aimed at achieving a balanced current budget by 2029/30.

But in a fiscal update last month she had only a small amount of leeway to hit this goal which could easily be erased by higher borrowing costs or weaker growth.

"Higher yields are going to make it difficult politically to decide what to do next," said Michael Metcalfe, head of macro strategy at State Street Global Markets in London.

"If yields go up and stay up this causes problem for the UK fiscal position and could put pressure on sterling as well."

(Additional reporting by Dhara Ranasinghe, Editing by Paul Sandle and Kate Holton)