UK markets experienced a fresh selloff, with long-dated bond yields hitting the highest since 1998 and the pound falling. Pressure is on Prime Minister Keir Starmer to gain investor confidence in the government’s budget. Chancellor Rachel Reeves faces challenges in finding savings or raising taxes to fill a £35 billion budget hole.

Yields on 30-year gilts rose to 5.72% and the pound dropped 1.5% against the dollar. The FTSE 100 Index fell 0.9%, while domestic stocks dropped 2.2%. Treasury Minister Spencer Livermore stated gilt yield rises have been in line with global peers. Record demand for 10-year government bonds was seen, despite high yields.

Economists predict the UK may need to raise taxes to adhere to fiscal rules. Prime Minister Starmer reshuffled his team to have more influence over economic policy. David Zahn of Franklin Templeton expects 30-year UK bond yields to surpass 6%. The pound faced pressure as gilt trading began.

Comparisons have been drawn to a market meltdown under former Prime Minister Liz Truss. The UK risks a “Starmer Moment” if faith in public finances isn’t restored. Bloomberg strategists expect long-dated gilts to remain in focus, potentially impacting UK assets. The current sell-off differs from the 2022 rout.

The rise in borrowing costs has led to concerns about the fiscal outlook globally. The pound is seen as a pressure valve for cautious investors. Tax rises are expected, but further increases could be counterproductive. Negative sentiment remains for the UK long end, favoring steepeners along the curve.

Read more at Yahoo Finance: UK Markets Slide as Debt Angst Drives 30-Year Yield to 1998 High