UK Gilt Yields Hit 2024 Lows Amid Debt Shift

Gilt yields, which represent the interest rates the UK government pays on its debt obligations, have declined to their lowest points since 2024.

Specifically, the yields on 10-year gilts dropped to 4.37% on January 12, before slightly rising to approximately 4.39% the next day. Throughout 2025, these yields remained consistently above 4.4%, while a year prior, they hovered around 4.9%.

Hal Cook, a senior investment analyst at Hargreaves Lansdown, observed, “2026 has witnessed a notable decline in gilt yields up to this point.” He highlighted that the bulk of this downward movement occurred last week, with an additional dip on Monday, driven by the UK’s relatively stronger performance compared to the US, where Federal Reserve Chair Jerome Powell continues to face criticism from the White House.

When gilt yields decrease, it signals that the prices of UK government bonds are rising, which in turn lowers the cost for the government to secure borrowing.

How the government is working to lower gilt yields

Investors in bonds prioritize borrowers with strong credibility. Gilts serve as a key tool for the UK government to raise funds. Similar to how banks or building societies evaluate a mortgage applicant’s reliability, bond investors scrutinize the UK government’s creditworthiness prior to providing loans.

For quite some time, the UK has not enjoyed a particularly favorable reputation in this regard, despite its status as one of the globe’s major economies. However, the additional fiscal flexibility established in the Budget has granted Chancellor Reeves a degree of enhanced trustworthiness.

Nevertheless, a continuing challenge remains the excessive supply of debt. The UK government currently holds £2.9 trillion in debt and allocates £110 billion annually solely to interest payments. This situation diminishes the appeal of newly issued gilts to prospective investors, as the market is already saturated with UK government debt, and the substantial servicing costs undermine the government’s perceived reliability as a borrower.

In comparison to other advanced economies, a significant portion of this debt is structured in long-term bonds.

On January 12, Bloomberg noted that the government is implementing deliberate measures to diminish this long-term debt burden. It has begun issuing greater quantities of UK Treasury bills, known as T-bills.

Understanding T-bills

T-bills are short-term government securities with maturities ranging from a minimum of one day up to a maximum of 364 days. According to Laith Khalaf, head of investment analysis at AJ Bell, the majority of these instruments mature within one month, three months, or six months.

Khalaf explains, “Similar to gilts or government bonds, T-bills function as loans to the government, offering an exceptionally high degree of safety. Investors are assured repayment unless the UK government defaults, an event considered highly improbable.”

In contrast to gilts, T-bills do not provide periodic interest payments. Instead, they are offered at a discount relative to their face value. Upon maturity, the government repurchases them at full face value, allowing investors to realize the profit from the price differential.

Earlier this January, the Debt Management Office (DMO), the entity responsible for issuing gilts and various other government debt instruments, announced it is considering expanding T-bill issuance to curtail the volume of long-dated government debt.

Cook commented, “The added flexibility from issuing shorter-term instruments is advantageous, especially amid worries about the sustainability of longer-term debt. This approach is also welcomed by the market, which currently has fewer participants interested in purchasing long-dated gilts compared to a few years back.”

Although the government has not yet ramped up T-bill issuance, the bond markets seem to have responded favorably to its strategy of reducing the share of long-term debt in its overall portfolio.

Cook added, “This explains why yields on longer-dated gilts have declined more sharply than those on shorter-dated ones. For instance, the 20-year yield has fallen by about 17 basis points since the beginning of last week.”