Source: Sharecast
The 30-year gilt yield hit 5.71% - the highest since 1998. Bond yields move inversely to bond prices.
Meanwhile, sterling was down 1% against the dollar at 1.3415, on track for its biggest one-day decline since April.
Kathleen Brooks, research director at XTB, said the key driver of weakness in the bond market could be a delayed reaction to the government reshuffle on Monday.
"The Prime Minister beefed up his economic team in the lead up to the budget. This has not gone down too well, with concerns that there is still a strategy void when it comes to the economy, as the government struggles to deliver the growth that it promised, at the same time as borrowing surges," she said.
Brooks said there could also be some concern that Chancellor Rachel Reeves is being "managed out".
"The last time there was a threat to Reeves’ position, back in early July, bond yields jumped as the market worried that she could be replaced by a more left-leaning member of the Labour party," she noted.
Neil Wilson, investor strategist at Saxo UK, said: "Gilt yields in the UK rose after the prime minister reshuffled the deck, seemingly sidelining his iron chancellor Reeves by poaching her deputy. If the Treasury won’t break the rules, then perhaps Number 10 can? The market move was a sign that investors do not have confidence the Treasury will stick to its strict borrowing rules.
"Long-dated gilt yields are now trading close to 27-year highs again with the 30-year above 5.7%. 30-year yields at their highest in almost three decades is not a good look for the Labour government and underscores that there is little fiscal or economic credibility left. Sterling has shipped a mighty 1% or more this morning as a result."
It wasn’t just UK bond yields making sharp moves on Tuesday, however, with European bonds yields also jumping to multi-year highs.
Yields on 30-year German, French, and Dutch bonds reached their highest levels since the Euro crisis in 2011.
Deutsche Bank's Jim Reid said: "Even in orderly markets, we’re seeing a slow-moving vicious circle: rising debt concerns push yields higher, worsening debt dynamics, which in turn push yields higher again.
"The immediate catalyst has been the upcoming no-confidence vote in the French government, scheduled for Monday, 8 September. French 10-year yields rose 2.5bps to 3.53% yesterday- their highest since mid-March - despite no fresh news."
