The UK government's long-term borrowing costs surged to their highest point since early 1998 on Tuesday, as a global bond sell-off intensified. The yield, which effectively represents the interest rate, on 30-year UK government bonds, known as gilts, reached 5.89%.
Traders expressed concerns that a fresh increase in oil prices could drive up inflation. Additionally, 10-year gilt yields stood at 5.25%, a level not seen since the global financial crisis of 2008.
These higher yields are expected to progressively increase the cost of financing government debt. If sustained, these costs could be reflected in the Office for Budget Responsibility's forecasts for Chancellor John Healey's budget on 28 October.
The global bond sell-off is influenced by international factors, including Japanese 10-year yields reaching their highest since the 1990s amid expectations of a Bank of Japan interest rate hike to control inflation. Investors also appear to be reacting to higher oil prices, which were up 1.7% at $92 following a recent exchange of fire in the Iran conflict.