Why Have UK Gilt Yields Moved Ahead of G7 Peers?

Since 2022, UK gilt yields, especially at long maturities, have risen above G7 peers, increasing borrowing costs and tightening financial conditions. This paper examines the drivers of the UK term premium — the component of yields reflecting time-varying risk compensation beyond expected short rates. In the UK, shifts in the investor base and rising importance of domestic factors may also have contributed, alongside signs of increased market fragility after the September 2022 turmoil. Maintaining credible policy frameworks and adapting debt management strategies to evolving demand conditions are key to containing the term premium.