UK sells 10-year gilt with highest yield since 2008

LONDON, March 24 (Reuters) - Britain sold ​2.25 billion pounds ($3.02 ⁠billion) of a benchmark 10-year ​government bond on Tuesday for which it will pay the highest yield of any 10-year bond since ​2008, ‌showing the impact on borrowing costs of the U.S.-Israeli war on Iran.

Investor demand for ⁠the 4.75% October 2035 gilt was strong with investors ⁠bidding for 3.50 times the ​amount available.

But the average yield for gilts sold at the auction was 4.911%, up sharply from 4.585% when the bond was last sold on February 3.

While Britain has ​paid higher ‌yields for potentially riskier longer-dated bonds, such as a 30-year green gilt sold in October, this is the highest yield at a 10-year gilt auction since July 2008, just before the global financial crisis caused the Bank of England ​to slash rates.

On Monday, the yield on 10-year gilts traded in the secondary market ‌shot up to its highest since 2008 at 5.118% on concerns that disruption to shipping in the Strait of ‌Hormuz would push up inflation, before tumbling after U.S. President Donald Trump paused attacks on Iranian power stations.

"We remain neutral on gilts," Patrick Brenner, chief investment officer ​for multi-asset at fund manager Schroders, said in a research note on Tuesday, adding that he ‌was also neutral on euro zone debt and negative on U.S. Treasuries.

"The rise in oil prices caused by the Middle East conflict has reduced the likelihood of previously ⁠anticipated ⁠rate cuts by the Bank of England," he added.

Ten-year ‌British gilt yields are still up nearly 70 basis points since the start of the conflict, around ​twice as ​much as for equivalent U.S. or German debt as many ‌investors see greater inflation and fiscal risks in Britain, which relies heavily on natural gas imports.

At 1027 GMT, 10-year gilt yields were flat on the day at 4.92%. ($1 = 0.7463 pounds) (Reporting by David Milliken Editing by William Schomberg)