What are gilt yields?
Gilt yields are the return investors get from lending to the UK government by holding gilts. In practice they show the government's cost of borrowing. When yields rise, new borrowing costs more. Yields move the opposite way to gilt prices: when prices fall, yields go up.
A gilt pays a fixed coupon, but its market price changes every day. If investors sell gilts, the price falls and the yield, the effective interest rate, rises. Yields go up when investors expect higher inflation or higher Bank Rate, or when they worry about government finances. The 10-year gilt yield is watched as a key signal. Rising yields matter to everyone. They raise the government's debt interest bill and leave less for public services. They also feed into fixed mortgage rates, because lenders price deals off market rates. In autumn 2022, a sharp jump in yields after the 'mini-budget' forced the Bank of England to step in. Global events, such as US interest rates, also move UK yields. Yields are quoted as a percentage a year.
The left often argues that a credible plan for growth matters more to markets than spending cuts.
The right often argues that keeping borrowing low and fiscal rules tight is the best way to keep yields down.
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Why do gilt yields affect mortgages?
Lenders base fixed mortgage rates partly on market interest rates, which follow gilt yields. When yields rise, new fixed deals usually get dearer.
Why do yields and prices move in opposite directions?
A gilt's coupon is fixed. If you pay less for it, that fixed payment is a bigger return on your money.