IMF sounds alarm on borrowing costs surge as bond rout deepens
The global rise in borrowing costs is a “particular concern,” the International Monetary Fund has said, as UK bond yields reach a level last seen in the financial crisis.
The yield on the 10-year UK gilt climbed four basis points on Wednesday morning to near 5.27 per cent, which followed the previous day’s rally that saw yields spike as much as 15 basis points. Longer term gilt yields were up five basis points to almost 5.89 per cent, nearing highs reached on Tuesday.
Similar moves are taking place across the globe, with India’s 10-year bond yield topping seven per cent and Australia’s equivalent surging to a 15-year high at over 5.2 per cent.
Kristalina Georgieva, managing director of the International Monetary Fund (IMF), sounded the alarm on the recent developments at the G20 meeting with top finance ministers and central bank governors in the US.
“The sovereign debt landscape for emerging and low-income countries has gradually improved in recent years, thanks to domestic policy efforts and international cooperation,” she said.
“But progress has been uneven, and persistent risks and uncertainty in the global economy, including spillovers from the significant increase in yields in advanced economies, call for policy discipline and underscore the importance of building buffers.”
Georgieva added: “The increase in global interest rates is of particular concern.”
UK in ‘acute’ position position as borrowing costs spike
The sell-off has stemmed from soaring energy prices after oil and gas supply was disrupted following the Iran war. Brent crude – the international benchmark for oil prices – climbed above $95 per barrel on Wednesday to its highest level in nearly six weeks.
In the UK, the bond sell-off has turned pressure on Chancellor John Healey, who is set to deliver his first Budget at the end of October.
Economists at Bloomberg have forecast Healey will see £12bn knocked off the £23.6bn in headroom left by former Chancellor Rachel Reeves in the 2025 Budget.
“Governments around the world are feeling the pressure from bond markets, but the situation is particularly acute for the UK, where Andy Burnham’s grand promises about reforming the economy are about to meet the cold reality of high debt levels and rocketing borrowing costs,” Chris Beauchamp, chief market analyst at IG, said.
“UK taxpayers face the likelihood of paying more for his grand ambitions, while also having to worry about a Bank of England rate hike that becomes more likely with each $1 on the price of oil.”