The UK is bracing for its most expensive debt issuance in at least 27 years, as a global bond selloff sends yields soaring and puts intense pressure on government finances.

According to sources familiar with the matter, the UK is marketing a benchmark-sized tranche of bonds maturing in January 2056 at a yield approximately 0.75 to 1 basis point above the existing 2055 gilt. This would represent the highest yield level seen in a UK gilt syndication since the Debt Management Office was established in 1998.

Over the past several weeks, UK gilts have suffered the sharpest impact among major developed economies amid the worldwide fixed-income rout, with yields now hovering near multi-decade highs. The selloff is being fueled by concerns over energy-driven inflation shocks, widening government deficits, and supply pressure from a wave of corporate bond issuance tied to the artificial intelligence boom.

The offering, expected to be priced later Tuesday, represents a tap of the £5.9 billion bond first issued in May 2025 with a coupon of 5.405% — a record for syndicated issuance at that time. Megum Muhic, a strategist at RBC Capital Markets, projects the deal could raise as much as £5 billion.

On Tuesday, the 30-year gilt yield stood at 5.83%, after touching its highest level since May 1998 last week. Borrowing costs have risen across other major economies as well. Last month, the US 30-year Treasury auction rate hit its highest since 2001, while Germany's syndicated bond sale priced at levels not seen since 2011. The UK's £900 million 25-year inflation-linked gilt issued last week carried a record yield of 2.496%.

The surge in borrowing costs is heaping pressure on Chancellor John Healey ahead of next month's Budget statement. Estimates suggest that rising bond yields have nearly halved the government's headroom under its fiscal rules since spring, shrinking from £23.6 billion to roughly £11.8 billion. In his first major speech since taking office, Healey said he would build on his predecessor's work to cement the UK's credibility in international bond markets. He stressed on Monday that fiscal discipline is "the cornerstone of every commitment this government makes."

Office for National Statistics data reveals that UK public sector net debt as a share of GDP has climbed from approximately 85% in fiscal 2019-20 to over 94% by the end of July — the highest level since the 1960s. House of Commons Library figures show debt interest payments reached £7.7 billion in July, with 8 pence of every £1 of government spending in 2025-26 going toward servicing debt.

Prime Minister Andy Burnham stated last September that Britain should not be "held hostage by bond markets," yet since entering Downing Street in July, he has committed to adhering to fiscal rules while seeking a measure of "flexibility." The syndication is being managed by bookrunners including BofA Securities, Goldman Sachs International Bank, JPMorgan, Santander, and UBS Investment Bank.