Benchmark 10-year gilt yields passed 1% yesterday for the first time since June's referendum, as overseas investors continued to shed sterling assets over fears of a 'hard' Brexit.
The yield on the 10-year note rose 0.06 percentage points to 1.02%, up from 0.73% last Monday, according to Tradeweb, the fifth session in a row that prices have fallen on the instruments.
Gilt yields have risen sharply in the last week in line with sterling's decline, with the pound currently worth $1.24 (£1.01) against the dollar, down from $1.30 last Monday.
This could suggest that overseas investors are shedding sterling assets as fears over a hard Brexit appear to be gathering momentum.
It was revealed on 11 October that Treasury reserves may take a £66bn annual hit if Britain goes for a 'hard' Brexit. This kind of arrangement would likely see the UK give up full access to the single market and full access of the customs union along with the EU.
Hargreaves Lansdown senior analyst Laith Khalaf said this will cause problems for chancellor Philip Hammond (pictured), who is rumoured to be plotting a debt-fuelled infrastructure spending spree in his Autumn Statement, and could now face higher financing costs.
Khalaf said: "Undoubtedly, the bond market has gone from strength to strength in recent years, but this sell-off hints at the damage that could be done to bond portfolios if interest rates were to rise to more normal levels, admittedly a distant prospect, but one which such low yields do not offer much compensation for the risk involved.
"The back up in yields may offer some glimmer of hope for companies with pension deficits though, as these liabilities look smaller at higher interest rates, and finance directors worrying about their next scheme valuation might well be urging yields up further.
"One man's meat is another man's poison however, and the new Chancellor may be hoping government borrowing costs do not rise too much further, if he is planning a debt-fuelled spending spree on infrastructure in his Autumn Statement, as is now widely anticipated."
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