What's causing the UK's long-term borrowing costs to rise?

"This is about trading on financial markets of a very long-term form of UK government debt - essentially loans taken out for 30 years. Demand for these assets goes up and down, setting the price, which in turn affects what is known as the yield, a measure of the effective interest rate facing the government. It is that 30-year gilt yield that has hit a new 27-year high after creeping up over the summer."

"The 30-year gilt is important in sectors requiring long-term returns: pensions and insurance. Ultra long government loans are especially important for defined benefit pensions systems, which need fixed and predictable payouts over long periods. One of the reasons why this has affected a series of European countries has been structural changes in pensions markets that is reducing the demand for such long-term debt."

"There is a lot of noise currently about UK government borrowing costs. The focus has been on what is known as the 30-year gilt yield, which is the effective interest rate of what it would cost the UK government to borrow money over three decades. This rate reached a 27-year high on Tuesday, which some argue is a verdict on economic mismanagement and fiscal credibility. The bond vigilantes are striking, and this is the ultimate harbinger of doom."

30-year gilt yields measure long-term UK government borrowing costs and recently reached a 27-year high. Long-term debt prices and yields fluctuate with market demand, affecting sectors that require predictable, long-duration returns. Several European countries have also seen similar highs, reflecting broader regional trends. Defined benefit pension schemes and insurers depend on ultra-long government loans for fixed payouts, and structural changes in pension markets have reduced demand for such debt. Market concerns about the political and economic sustainability of tax and spending plans have also contributed to higher yields and increased borrowing costs.

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