UK 30-year borrowing costs hit highest since 1998 before local elections

* Global bonds selloff but UK vulnerable

* Iran war and jitters about local elections ​weigh on ⁠UK bonds

* 30-year gilt yields highest since 1998, up 15 bps ​on the day

* Investors add to UK rate hike bets (Adds detail in paragraph 3,5, analyst comment in 7, 13-15)

LONDON, May 5 (Reuters) - Britain's 30-year borrowing costs rose ​to ‌their highest level in nearly 28 years on Tuesday as part of a broader selloff in gilts ahead of local elections this week.

Thirty-year gilt yields peaked ⁠at 5.790% at 1202 GMT, up 15 basis points from Friday's close after ⁠a public holiday on Monday when U.S. and German ​yields rose on continued disruption to shipping in the Strait of Hormuz. Thirty-year gilt yields were last higher in May 1998.

British bond yields have risen sharply since the start of the war in Iran with big daily spikes which were less common before the conflict started in late ​February. Tuesday's rise ‌in 30-year yields was the biggest one-day move since April 10.

Benchmark 10-year gilt yields - which are more reflective of new public debt issuance costs - rose around 15 bps at one point, pushing past the 5% level to 5.107% and on track for their highest close since 2008. They were up 10 bps in late trading.

The interest rate premium on British 10-year borrowing costs over equivalent German Bunds rose to 2 ​percentage points on Tuesday for the first time since last October.

Investors are closely watching local elections on Thursday which may add to pressure ‌on Prime Minister Keir Starmer and raise questions about Britain's future fiscal policy if he is replaced as leader of the Labour Party.

"The combination of political uncertainty, energy sensitivity and fiscal pressure is ‌forcing investors to reassess how much risk they are willing to carry and that adjustment is happening quickly ahead of local elections," said Lale Akoner, global market analyst at stock and crypto trading platform eToro.

Short-dated gilt yields, which are more sensitive to interest rate expectations, also jumped, with ​the two-year yield up 14 bps at 4.571%.

UK BONDS UNDER PRESSURE

Britain is seen as more exposed than many other European countries to an energy-price shock due in ‌part to weak public finances which could come under further strain if the government seeks to soften the hit for power users.

Financial markets were pricing between two and three rate hikes by the Bank of England by the end of 2026 as the latest spike in oil prices, ⁠caused by the ⁠Iran war, fuels inflation concerns.

Last week markets scaled back rate rise expectations after Governor Andrew Bailey ‌said there were a range of possible paths for rates and that he was not signalling that rates would definitely rise.

Thomas Pugh, chief economist at audit, tax and ​consulting firm RSM UK, said gilt yields ​could rise further as any new Labour leader replacing Starmer would likely increase spending.

"Granted, more ‌debt-funded government spending would, in theory, provide a near-term boost to growth, but it would also boost inflation," Pugh said.

"That would likely cause the Bank of England to hike interest rates and would send gilt yields soaring. That increase in borrowing costs would largely offset the positive impact from an increase in government spending." (Reporting by Suban Abdulla; editing by David Milliken, William Maclean)