UK bonds continue to sell off, oil prices surpass $100, and global borrowing costs face renewed pressure

⑴ The yield on the UK 10-year government bond extended Wednesday's sell-off, reaching its highest level in over 19 years on Thursday, as oil prices rose above $100 per barrel for the first time in six weeks, pushing up global borrowing costs. ⑵ As yields climbed, the UK Debt Management Office announced the results of a £500 million gilt auction maturing in May 2030 with a coupon of 4.625%. The auction attracted bids totaling £1.62 billion, with an average yield of approximately 4.79%—the highest for gilts in this maturity range since October 2023. ⑶ On Tuesday, the benchmark 30-year gilt was sold via syndication at the highest yield since at least 1998, underscoring the acute pressure on long-term financing costs. ⑷ According to the chief investment strategist at an institution, higher government bond yields largely reflect a global trend, with surging energy prices seeming to be the trigger for the recent increase in yields. ⑸ The strategist also noted that there is a potential structural shift underway in global capital flows, as some of the world's largest institutional investors are moving from US Treasuries to corporate bonds in search of returns. ⑹ This indicates that the structure of demand for sovereign debt may be changing, and combined with supply pressures and shifts in investor preferences, the downside room for yields is markedly constrained. ⑺ Ongoing attention will focus on whether oil prices can remain above $100 per barrel, the path of UK inflation and central bank policy, and whether the shift of institutional funds from sovereign debt to corporate bonds accelerates.