Government issues debt at highest interest rate since financial crisis on eve of Budget

The government auctioned new debt at its highest yield since the financial crisis, shortly ahead of the Budget announcement. The transmission mechanism runs through the gilt market: higher auction yields signal that investors are demanding a larger term premium to absorb fresh issuance, which lifts borrowing costs across the sovereign curve and feeds into the cost of servicing public debt. Long-dated gilts and fiscal-sensitive assets are most exposed, since higher yields raise the debt-interest bill the Budget must accommodate and can tighten expectations for fiscal headroom against self-imposed rules. Traders will watch the Budget's borrowing forecasts and any revised Office for Budget Responsibility projections for debt interest spending, as well as the subsequent gilt auctions and their bid-to-cover ratios for evidence of whether demand is firming or fading.

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