The UK has been the most "hurt" amid the global bond market sell-off: borrowing costs may hit their highest level in nearly thirty years, and pressure is mounting ahead of the new Chancellor's budget proposal.

Driven by a global bond sell-off that has caused yields to soar and put pressure on government finances, the UK is set to face its highest debt issuance costs since at least 1998. According to informed sources, the UK is marketing a benchmark-sized bond maturing in January 2056 at a level approximately 0.75 to 1 basis points higher than the yield on 2055 bonds. This will mark the highest yield level faced by UK government bond sales since the Debt Management Office was established in 1998. In recent weeks, the UK sovereign bonds have experienced the most severe impact among major developed economies amidst the global bond market sell-off, with yields currently hovering at decades-high levels. Behind this sell-off are market concerns regarding inflationary pressures from energy prices, the continued expansion of government deficits, and supply pressures arising from large-scale corporate bond issuances driven by the artificial intelligence (AI) boom. The upcoming UK bond issuance is expected to be priced later on Tuesday local time, constituting an additional issuance of the 5.9 billion bonds first issued in May 2025, which had a coupon rate of 5.405%, setting a record for syndicate issuances at that time. Megum Muhic, a strategist in capital markets at RBC Capital Markets, anticipates that this issuance could raise as much as 5 billion. On Tuesday, the yield on the UK's 30-year government bonds was reported at 5.83%, having reached its highest point since May 1998 last week. Recently, bond issuance costs in other countries have also increased. Last month, the auction rate for US 30-year government bonds hit a new high since 2001; the rate for German bonds issued through syndicates was the highest since 2011. The 900 million inflation-linked bonds issued by the UK last week had a record yield of 2.496%. The rising borrowing costs have increased pressure on UK Chancellor of the Exchequer John Healey ahead of next month's budget announcement. Estimates suggest that the UK government's maneuvering space under its fiscal rules has shrunk by nearly half since spring due to rising bond yields, dropping from 23.6 billion to about 11.8 billion. In his first major speech since becoming Chancellor, Healey stated that he would continue to bolster the UK's credibility in the international bond market based on the foundation laid by his predecessor. He emphasized on Monday that fiscal discipline "is the cornerstone of all this government's commitments." Data from the Office for National Statistics shows that the UK's net public sector debt as a share of GDP has risen from about 85% in the 2019-20 fiscal year to over 94% by the end of July, the highest level since the 1960s. Data from the House of Commons Library indicates that interest payments on debt reached 7.7 billion in July; in the 2025-26 fiscal year, 8 pence of every 1 spent by the government will go towards debt interest payments. Prime Minister Andy Burnham stated last September that the UK should not be "beholden to bond markets," but since taking office at Downing Street in July, he has committed to adhering to fiscal rules while seeking some degree of "flexibility." The bookrunners for the UK bond issuance include Bank of America Securities, Goldman Sachs International, JPMorgan, Santander Bank, and UBS Investment Bank.