UK Treasury forced to take questions from MPs as sell-off in UK government bonds intensifies

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Britain’s finance minister was forced to take questions from MPs about the turmoil in Britain’s bond market as the UK government’s borrowing costs hit their highest levels since the financial crisis.

House of Commons Speaker Sir Lindsay Hoyle said he had accepted urgent questions from the Conservative opposition to Chancellor Rachel Reeves about “the growing pressure on public finances from borrowing costs”.

Hoyle ruled that the finance minister should appear in parliament on Thursday morning, when the 10-year bond yield rose 0.12 percentage points in early trade to 4.93%, its highest level since 2008.

Reeves, who is about to depart for China on a long-term project, sent deputy Darren Jones to answer questions.

Sterling has been swept up in the sell-off, falling as much as 1% against the dollar to $1.224, its lowest level since November 2023, after recently trading at $1.228.

“Selling in [the pound] Analysts at Brown Brothers Harriman said: “UK gilts reflect the deterioration in the UK’s fiscal outlook.”

Sterling has also been hit by the dollar’s recovery as a string of recent US data boosted investor confidence in the world’s largest economy, while sentiment in the UK was subdued.

UK borrowing costs have risen sharply as investors worry about the government’s huge borrowing needs and the growing threat of stagflation, a combination of weak growth and persistent price pressures.

“The economy is entering stagflation,” said Mark Dowding, chief investment officer at RBC Blue Bay Asset Management.

Recent bond market jitters have also raised concerns about raising taxes or cutting spending. The Treasury has said it will reduce spending rather than increase taxes.

Appearing in the House of Commons on Thursday, Chief Secretary to the Treasury Jones insisted Labor had been tackling the financial “mess” left behind by the previous Conservative government, which he argued had left the public with a £22bn “black hole” in finances .

But shadow chancellor Mel Stride, who raised the urgent question, said Levis should attend parliament in person.

“Where is the Speaker?” he asked. “It is regrettable that at this difficult time, with these serious issues, she is nowhere to be seen.”

Despite announcing a £40bn tax rise aimed at “wiping the slate clean” from public finances, in last autumn’s budget Reeves left himself £9.9bn of room to deal with Her revised fiscal rules.

Since then, rising government debt yields have threatened budget room for maneuver. Given that government interest payments exceed £100 billion a year, the level of bond yields is an important determinant of budget headroom.

Analysts said the UK government bond market could be in for another sell-off on Friday if closely watched US jobs data pushes US bond yields higher and drags down UK bonds.

“If we see strong jobs data, the situation for gilts could become extremely severe,” said Pooja Kumra, UK rates strategist at TD Securities.

Analysts said the simultaneous sell-off in gilts and sterling echoed the reaction to Liz Truss’s 2022 “mini” budget.

But many investors believe that the current situation has not reached the level of the UK government debt crisis in 2022.

“I do expect things to start to bottom out… The washout in UK government debt already happened last year,” said Geoffrey Yu, senior strategist at the Bank of New York. “I don’t deny that there are problems in the UK, but suddenly Comparing that to 2022, I think that’s moving things forward. ”