UK auction sells long-dated gilt at second-highest yield since 1998

LONDON, Sept 9 (Reuters) - Britain will pay the second-highest yield since 1998 for a long-dated government bond sold at auction after it issued 1.75 billion pounds ($2.38 billion) of debt maturing in 2043 on Tuesday, showing the budget pressures facing finance minister Rachel Reeves.

A global surge in long-dated borrowing costs over the past year has led the UK Debt Management Office to shift most of its 299 billion pounds of annual issuance away from long-dated debt towards cheaper, but still costly, short and medium-dated borrowing.

Last week 20- and 30-year gilt yields rose to their highest since 1998, while Britain sold 14 billion pounds of 10-year debt at the highest borrowing cost since 2008.

Yields eased back to a three-week low on Friday after weak U.S. jobs data spurred expectations that the Federal Reserve will cut rates, although markets do not price in a similar move by the BoE until March 2026.

The 4.75% 2043 gilt sold on Tuesday at an average yield of 5.291% - a yield exceeded in April when a 4.375% 2054 gilt sold at a yield of 5.357% just after U.S. President Donald Trump's tariff plans caused brief turmoil in financial markets.

Since 1998 there have only been a handful of gilt sales with higher yields. These have either been for short maturities when Bank of England rates were higher, or at gilt syndications or tenders with different supply and demand dynamics to auctions.

Demand at Tuesday's auction was above average, with 3.5 times as many bids as the volume of gilts on offer and a tight 0.2 basis point yield tail, indicating few low-ball bids.

But the high demand reflected the high yields on offer - similar to last week, when as well as the 10-year syndication, a 20-year inflation-linked gilt sold at the highest real yield since 2001.

Britain's government borrowing costs and inflation are the highest in the Group of Seven large advanced economies.

High borrowing costs are one reason why many economists think Reeves will need to find tens of billions of pounds of extra tax revenue or spending cuts in her annual budget on November 26. ($1 = 0.7365 pounds) (Reporting by David Milliken; editing by Suban Abdulla)