UK government bond yields hit their highest since the 2008 crisis

The cost of government borrowing for the UK on March 20 jumped to the highest level since the 2008 financial crisis, writes the Financial Times (FT). The yield on benchmark 10-year government bonds exceeded 5%. Investors were trying to factor in rising inflation risks and the increasing likelihood of an interest rate hike later this year, CNBC writes.

Investors in the U.K. are re-pricing government bonds as markets bet on rising inflation and an interest rate hike by the Bank of England, CNBC points out. On Friday, March 20, the yield on 10-year U.K. government bonds (also known as gilts) rose about 15 basis points to 5%, hitting the highest since the 2008 financial crisis.

UK government bonds have generally undergone significant changes amid the escalating conflict with Iran, the channel points out. Yields on benchmark 10-year Gilts have risen about 68 basis points in the 15 trading days since the conflict began, while yields on two-year Gilts have added about 97 basis points.

The British bond market has been the most vulnerable to increased market fears of rising inflation as the war between the U.S. and Iran drags on, CNBC notes - in part because of Britain's dependence on energy imports from the Persian Gulf.

Even before the war in the Middle East began, the U.K. had the highest borrowing costs among the G7 countries, with yields on long-term 20- and 30-year government bonds consistently above the key 5% level, CNBC notes. On Friday, March 20, yields on these securities rose another 9 and 7 basis points, respectively.

Rising borrowing costs are increasing pressure on UK finance minister Rachel Reeves, the FT notes. Concerns about the impact of the energy shock intensified on Friday, March 20, following the release of data showing that UK borrowing in February totaled £14.3 billion ($19.03 billion), which was above forecasts and £2.2 billion higher than the February 2025 level.

"February's public finance data [in Britain] showed that the fiscal situation was worse than expected even before the full effect of higher energy prices was fully realized," Capital Economics analysts said.

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