UK, Japan 30-Year Bond Yields Rise More Than 10 Basis Points as Spending Plans Fan Debt Concerns

Both governments signal bigger fiscal spending

More sovereign bond issuance may follow

UK, Japan 30-year yields jump

Long-term government bond yields in the UK and Japan have each risen by more than 0.1 percentage point over the past week. The move has fueled views that aggressive fiscal policies announced by the two governments to support economic recovery are pushing bond prices down and yields up.

CNBC market data show the yield on the UK 30-year government bond ended July 21 at 5.7451%. That was up about 0.11 percentage point, or 1.92%, from 5.6370% on July 15. The 10-year gilt yield also climbed about 0.11 percentage point over the same period.

One driver was Andy Burnham's pledge to pursue large-scale fiscal spending after taking office as the UK's 59th prime minister on July 20. In his "10-year economic plan," Burnham proposed the biggest public rental housing construction program since World War II, along with industrial policies to rebuild the steel and energy sectors. At his inauguration, he also cited rent controls and broader subsidies for energy and bus fares.

Burnham has also pledged broader public control over essential goods. He argues inflation can be contained only if the public sector is able to control prices for those goods. He has said privatization under Margaret Thatcher's government in the 1980s increased costs for the public, and has called for companies including Thames Water, the UK's largest water supplier, to be brought back under public ownership.

Japan's 30-year government bond yield also rose over the past week, climbing 0.145 percentage point, or 3.86%, to 3.9060% from 3.7610%. The move followed the release on July 21 of Prime Minister Sanae Takaichi's first basic economic and fiscal policy guidelines since her administration took office. The plan calls for attracting more than 370 trillion yen in public and private investment by fiscal 2040 in strategic sectors including artificial intelligence, semiconductors and space.

Markets focused on the prospect of bigger government spending. Raising part of the funds for the 370 trillion yen investment plan would likely require more government bond issuance. Takaichi's call on the Bank of Japan to keep interest rates low also added to the pressure. As a result, government bond yields may continue rising for the time being even if borrowing costs in the broader economy remain low.

Son Ju-hyung, Hankyung.com reporter, handbro@hankyung.com