Ten-year yields cross 5% while conventional gilts log their weakest run since 2022
UK government bonds have recently fallen sharply, sending yields to levels last seen during the 2022 market turmoil and reigniting concerns about the outlook for household and business borrowing costs, including mortgages.
Market pricing has shifted quickly. UK 10-year gilt yields have moved above 5% for the first time since the global financial crisis, while an index tracking conventional gilts has fallen by nearly 5% this month, its weakest performance since the volatility that followed Liz Truss’s mini Budget in 2022.
The market value of UK government bonds has also fallen by more than £100 billion in recent weeks, according to global financial advisor deVere Group.
Nigel Green (pictured right), chief executive of deVere Group, said the development reflects rising inflation expectations linked to higher oil and gas prices.
“What we are witnessing is the early stage of a dangerous chain reaction,” he said. “A spike in oil and gas prices is feeding directly into inflation expectations, and bond markets are responding fast.”
Green argued that, while the trigger differs from 2022, the transmission to the real economy is similar as yields rise. Higher government borrowing costs can feed through to mortgage rates and credit conditions more broadly, particularly if lenders anticipate a more persistent inflation path.
The UK’s reliance on imported gas leaves it exposed to abrupt changes in global energy prices, especially if disruption risks increase across key supply routes. Green warned that inflation “could now climb back toward 5%” if elevated energy prices persist.
The backdrop is heightened geopolitical tension, with prime minister Keir Starmer expected to convene an emergency COBRA meeting on the fallout from the Iran war, attended by chancellor Rachel Reeves and Bank of England governor Andrew Bailey. The agenda is expected to include energy security, inflation and the resilience of the wider economy.
For mortgage professionals, the immediate issue is how far the rise in gilt yields is reflected in swap rates and lender pricing, and whether expectations of higher-for-longer Bank Rate become embedded. Higher gilt yields can tighten affordability through increased mortgage costs, while also weighing on consumer sentiment and activity in the housing market.
“Commodity shocks don’t stay contained,” Green said. “They move into inflation, then into bond markets, and then into the real economy. By the time it reaches borrowing costs, everyone feels it—governments, businesses, and households alike.
“The UK is at the sharp end of this shift right now, but it’s unlikely to be the only one. If energy prices remain elevated, we could see similar pressures building elsewhere.
“The lesson is clear—what starts as an oil and gas shock can very quickly become a financial shock. The surge in gilt yields is an early warning sign.”
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