Borrowing costs

Government borrowing costs jump as central banks prepare to raise rates

The cost of government borrowing jumps as central banks prepare to raise rates to fight inflation

Six-year high: UK benchmark ten-year gilt yield was close to 2%

The cost of government borrowing has jumped as central banks around the world prepare to raise interest rates to step up their fight against inflation.

Yields on government bonds – a key measure of countries’ cost of borrowing – are hovering around multi-year highs. In the UK, the yield on ten-year benchmark gilts was close to 2%, its highest level in six years.

In the United States, the equivalent yield on ten-year Treasuries rose above 3% – a level not seen since 2018 – before easing.

Rising borrowing costs come as central banks raise interest rates to fight inflation.

The Reserve Bank of Australia raised rates yesterday for the first time in more than a decade.

In the United States, the Federal Reserve is expected to raise US rates by 0.5 percentage points today, which would be the biggest increase since 2000.

And the Bank of England is expected to hike UK rates to 1% tomorrow – the highest level since 2009.

The Bank has already raised rates three times since December, raising them from 0.1% to 0.75%.

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