Budget worries hit UK debt sales as investors ‘lose patience with uncertainty’
Demand for UK government debt has weakened this week, as pressure builds on the government ahead of the autumn budget.
A sale of nine-year UK bonds this morning has attracted fewer bids than a similar tender back in July.
The UK debt management office succeeded in selling £1.25bn of nine-year bonds, which mature in 2034 – but at a higher cost, and with fewer bids than two months ago.
The 2034 gilts have been sold at a bid-to-cover ratio of 2.90 and an average yield of 4.584%. July’s £1.5bn sale of this bond was more popular – with a cover ratio of 3.32 – and an average yield of 4.553%. That means today’s auction was less over subscribed, which meant London has to accept a higher interest rate on the bonds.
This follows disappointing auctions earlier this week – sales of five and 30-year bonds this week both saw measures of demand hit the lowest in at least two years, Bloomberg reports.
Bond investors are waiting for Rachel Reeves’s budget, in late November, to find how the chancellor will keep within her borrowing rules.
Lale Akoner, global market analyst at eToro, says the sharp drop in gilt demand shows investors are “losing patience with uncertainty”, adding:
The weak auction demand suggests the market is far from convinced by Reeves’ plans, meaning volatility could persist until the budget provides clarity.
The budget will need to deliver credible fiscal tightening, otherwise the UK risks testing investor confidence further. For income-focused investors, high yields may be tempting, but the risk is that further fiscal slippage pushes borrowing costs even higher. For retail investors, that means gilt yields may stay elevated, offering income opportunities, but the volatility signals caution.
Until the budget lands, the gilt market looks less like a safe haven and more like a barometer of political risk.”
Andy Burnham, Labour mayor of Greater Manchester, has added to the uncertainty around government spending plans by claiming Labour MPs are privately urging him to challenge Keir Starmer to become prime minister, and arguing the government must “get beyond” being in hock to the bond markets.
“We’ve got to get beyond this thing of being in hock to the bond markets,” Andy Burnham told @TomMcTague.
These remarks causing real annoyance inside government.
“What does that even mean? Pay off the debts we owe them quicker by spending less on public services or ignoring…
— Pippa Crerar (@PippaCrerar) September 25, 2025Share
Updated at 07.38 EDT
Key events
Show key events only
Please turn on JavaScript to use this feature
Closing post
Time to recap…
Jitters are starting to show in the UK government debt market, amid economic uncertainty ahead of the budget in November.
An auction of nine-year UK bonds this morning saw weaker demand, following lacklustre sales of five and 30-year bonds this week.
Long-term borrowing costs have also risen, with the yields on 10 and 30-year debt higher this afternoon.
The selloff follows continued speculation about how Rachel Reeves will stick to her fiscal rules, and amid pressure on prime minister Sir Keir Starmer.
Investors have warned that proposals laid out by Manchester mayor Andy Burnham could alarm the bond markets, with one analyst saying his agenda could widen the deficit and push up borrowing costs even more.
In other news…
The Reform UK leader, Nigel Farage, has stepped up calls for the Bank of England to halt bond sales and cut the interest it pays to UK banks, after a meeting with its governor, Andrew Bailey.
The Co-op has fallen into the red after it suffered an £80m hit to profits as a result of a “malicious” cyber-attack this year, and estimated the full-year cost could hit £120m.
Jaguar Land Rover has announced that parts of its “digital estate” are operating again, as the carmaker recovers from its cyber attack.
The government has been urged to provide cash support to help JLR’s suppliers keep running.
Economic growth in the US in April-June was stronger than expected.
ShareJLR: sections of our digital estate are now up and running
Newsflash: Jaguar Land Rover has announced that parts of its “digital estate” are operating again, as the carmaker recovers from its cyber attack.
In a new statement, JLR says:
As part of the controlled, phased restart of our operations, today we have informed colleagues, suppliers and retail partners that sections of our digital estate are now up and running. The foundational work of our recovery programme is firmly underway.
In an insight into the recovery process, JLR explains:
We have significantly increased IT processing capacity for invoicing. We are now working to clear the backlog of payments to our suppliers as quickly as we can.
Our Global Parts Logistics Centre, which supplies the parts distribution centres for our retailer partners in the UK and around the world, is now returning to full operations.
This will enable our retail partners to continue to service our clients’ vehicles and keep our customers mobile.
The financial system we use to process the wholesales of vehicles has been brought back online and we are able to sell and register vehicles for our clients faster, delivering important cash flow.
ShareFT: Andy Burnham’s borrowing plans would spook gilt market, investors warn
The Financial Times are reporting that bond investors fear a Labour government led by Andy Burnham would spark a fresh sell-off in gilts and the pound if it launched a borrowing spree.
Burnham’s proposal to borrow an extra £40bn to build council houses alongside a mass nationalisation programme is expected to alarm the gilt market.
Mark Dowding, chief investment officer for fixed income at RBC BlueBay Asset Management, has said:
“I think this speaks to his own financial naivety. Market confidence would sour very quickly. Yields would rise and the pound would also likely be under pressure.”
ShareXTB: Weak demand for UK debt shows Labour should swerve Andy Burnham
Political risks in the UK is once again spooking the UK’s bond market, reports Kathleen Brooks, research director at XTB.
She writes:
Andy Burnham, the mayor of Manchester, seems keen to replace Kier Starmer as Prime Minister. Although Starmer is unpopular and the government’s approval ratings are through the floor, a change of leadership could exacerbate the UK’s fiscal problems even more. 10-year bond yields are higher by more than 5 bps today, 30-year yields are also rising. Although global bond yields are rising, the UK is the outlier, and is a major underperformer compared to our peers.
Andy Burnham’s rhetoric of nationalizing utilities and questioning why the government needs to be in ‘hock’ to the bond market, has awoken the bond market vigilantes. After protecting Rachel Reeves’ job earlier in the summer, the bond market could save the day for Kier Starmer. The problem with Burnham’s rhetoric is that the UK government needs to be very aware of the bond market, because we have a budget deficit, which has been exacerbated by Labour’s current spending plans. His agenda could widen the deficit and push up borrowing costs even more, which is why bond yields are rising on Thursday.
The weak demand for UK debt is another reason Labour should swerve Andy Burnham, Brooks adds:
Burnham and his leadership bid comes at a bad time for the UK’s bond market. This week has seen weak demand across debt auctions. For example, today’s 9-year debt auction saw demand fall to 2.9 times the amount on offer, down from 3.22 in July. This is not disastrous, but it suggests that sentiment towards UK debt remains fragile.
Stronger yields and better than expected economic data has boosted the dollar on Thursday, which is now the top performer in the G10 FX space, reversing earlier losses. The pound is the second weakest performer, as it struggles once more under the weight of political concerns.
The real reason behind the increase in UK government yields (see earlier post) is economic policy uncertainty, explains Professor Costas Milas, of the Management School at University of Liverpool.
He explains:
Endless/speculative talk about tax increases all the way up to 26 November (Budget date) is fuelling economic policy uncertainty and hitting consumer expenditure and business planning.
Add to this the rise in political uncertainty (will Starmer’s authority be challenged soon?) and you have the unpleasant situation where financial markets demand higher returns to trust and therefore lend money to the UK government.
This is far from over. We run the risk of witnessing a further increase in our borrowing costs through a downgrade of our sovereign credit score by credit ratings agencies. This is because existing co-authored academic work of mine in the Journal of International Money and Finance shows that credit rating agencies penalise economic policy uncertainty at least as much as big fiscal imbalances!
ShareWall Street opens in the red.An entrance at the New York Stock Exchange (NYSE). Photograph: Gina M Randazzo/ZUMA Press Wire/Shutterstock
A third straight day of losses is on the cards in New York.
The Dow Jones industrial average has dropped by 203 points, or 0.44%, in early trading to 45,917 points.
Tech stocks are under pressure, as fears that AI enthusiasm may have pushed the market too high, pulling the Nasdaq index down by 1.2%.
Oracle is among the big fallers, down 5%, as enthusiasm over its tie-up with OpenAI fades.
The Unite union says it is challenging management at manufacturing company Linamar, based in Dunmurry, near Belfast, over proposals to lay off 40 temporary, agency workers.
Linamar are a supplier to Jaguar Land Rover, according to Unite, who insist they shouldn’t pay the price for the carmaker’s cyber-attack.
General secretary Sharon Graham said,
Linamar workers cannot be expected to pay the price for this cyber-attack.
Given the expectation of UK government intervention to safeguard jobs and skills – there is no justification for any lay-offs at Linamar.
Unite regional officer Norman Cunningham said:
Linamar workers and their families face an immediate threat of redundancy and a financial cliff-edge. Financial support for the JLR supply chain must be swiftly is delivered to avoid workers being forced on to benefits.
Updated at 10.18 EDT
UK bond yields on the rise
UK government borrowing costs are climbing again today.
The yield, or interest rate, on 10-year UK gilts is up 5 basis points at 4.726%, their highest level since early September.
30-year gilt yields are up 5.5bps at 5.54%, towards the 27-year high (5.75%) hit a few weeks ago.
Bond yields rise when price fall. Rising yields on long-dated bonds suggests investors are losing faith in a government’s long-term financial credibility.
Today’s selloff could have several causes, such as the weaker demand for today’s auction of short-dated bonds, or Andy Burnham’s argument that the bond market shouldn’t dictate government policy.
The dollar is rallying, as investors calculate that today’s strong jobless claims and GDP data make interest rate cuts less likely.
This has pushed the pound below $1.34 for the first time in three weeks; the euro has hit a two-week low at $1.17.
In a second piece of encouraging US economic data…. fewer Americans filed claims for unemployment support last week.
US jobless claims fell to 218,000 in the week to 20 September, down from 232,000 in the previous week.
That suggests American firms continued to hold onto staff, despite signs that hiring has slowed sharply this summer.