Gilts Now Yield More Than Treasuries at Every Maturity: Britain's First Hike in Three Years Hands the Funding Advantage to the Dollar — and to JPMorgan Chase

The vote was hawkish in composition, not just in headline. Bank staff project CPI inflation at roughly 4½% in 2027 Q1 and about 5% in 2027 Q2 as the energy shock passes through, and the projections published the same morning assume Bank Rate of 3.9% at the end of 2026, 4.9% through 2027 and 2028, and 4.7% in 2029. Growth is cut to 1.0% over the four quarters to 2027 Q4, from 2.2% at 2026 Q4. The Bank has committed to outlast the inflation shock, not merely to respond to it.

The Federal Reserve held the target range at 3.75–4.00% on October 28, 2026 — but it held10–2, with Lisa Cook and Beth Hammack voting to raise by 25 basis points, and it continues to maintain ample reserves in the banking system rather than shrinking its balance sheet. All 100 economists in Reuters' October 20 poll expect a December hike, and nearly 60% see the policy rate peaking in a 4.00–4.25% range. The divergence is one meeting wide and points the same way, which makes the level gap — not the direction — the thing that matters.

Put those two rows side by side and the real story emerges: the only G7 central bank still shrinking its own government debt is the one that just hiked. The Federal Reserve is not selling Treasuries; the Bank of England has scheduled £20 billion a year of active gilt sales until its holdings reach zero in 2034. Britain is competing for global fixed-income capital at the same moment as it withdraws its own bid for it — and Washington is not.

On November 5, the two-year gilt yielded 4.782% against 4.07% on the two-year Treasury — a 71 basis-point premium. The ten-year gilt yielded 5.1546% against 4.84% — a 31 basis-point premium. At the long end, thirty-year gilts reached 5.9% in October while the thirty-year Treasury sat at 5.25%. For the first time in the modern cycle, a borrower can fund in dollars more cheaply than in sterling at every point on the curve, and sterling is the currency with the central bank behind it.

Sterling funding did not get expensive because of one decision. It got expensive because three sources of demand for gilts left at once — and each withdrawal is documented in a primary disclosure, not inferred from price action.

Between February 2022 and late September 2026, ten-year gilt yields rose roughly 450 basis points, and Bank staff attribute about 200 basis points of that to term premia rather than to expected policy rates. That is the deeper point: sterling's yield has been driven by the price of risk in holding sterling duration, not by the Bank's rate decisions, which is why a 25 basis-point hike barely moved the long end.

Three conditions have to hold for the dollar to keep absorbing the world's demand for safe duration: a central bank still providing reserves, a deep long end, and an offshore investor base willing to lend. All three currently hold. The Federal Reserve is maintaining ample reserves, the thirty-year Treasury yields5.25% against gilts at 5.9% in October, and Japanese investors returned to foreign duration in the week to October 31 after six weeks of withdrawals. The dollar is the only major currency where liquidity is still being added at the margin and long paper is still being bid.

The fee pools tell the same story from two different directions. A dollar-funded bank earns the spread on liquidity that a shrinking sterling market can no longer supply, while a manager of index products earns fees whenever duration is repriced violently in either currency. Both businesses are levered to the volatility that a divergence in funding costs creates, not to any single central bank's next move.

The cost of sterling funding lands on UK households, UK corporates and the banks that sit between them. The Financial Policy Committee's own September assessment shows the squeeze arriving through lending rates rather than through defaults: the effective rate on new loans to private non-financial corporates rose 20 basis points to 5.62% in July, new SME lending went to 6.61% from 6.36%, and quoted fixed-rate mortgage rates are up 40–60 basis points. The adjustment is happening in the price of credit, and 2027 is when the repriced balance sheets land.

The inflation the Bank is fighting was imported. US crude settled at $96.09 a barrel on November 3 as US-Iran talks briefly revived, then Brent jumped more than $3 on November 5 after tanker attacks, and Gulf crude and condensate exports averaged 14 million barrels a day in October — about 86% of pre-war levels — with Reuters reporting fresh signs of a glut as demand responds to high prices. Britain's hiking cycle rests on an energy premium that is already thinning, which caps how much of the projected 4.9% terminal rate the market should take seriously.

The same barrel that pushes UK consumer inflation towards 5% and forces a Bank Rate path to 4.9% is, for a Korean refiner, a margin windfall: SK Innovation swung from a ₩2.7 trillion operating loss in FY2025 to ₩8.9 trillion of trailing operating income as revenue grew 26% to ₩101.5 trillion. That asymmetry is the practical warning in this story — the UK is tightening against a shock that is currently enriching the downstream energy balance sheets the BoE is implicitly worried about.

The facts are unusually clean: Bank Rate at 4.00% on an 8–1 vote, a projected inflation peak near 5% in 2027 Q2, an assumed terminal rate of 4.9% through 2028, gilts yielding 31 to 71 basis points more than Treasuries at every maturity, a gilt supply schedule deliberately shortened to under 7% in the long end, and a central bank scheduled to sell its own debt to zero. The inference is that sterling funding is the scarce, expensive end of the market and the dollar is where demand converges. The speculation is what happens if the oil premium keeps unwinding: a cheaper energy shock would collapse the projected 4.9% terminal rate and unwind the gilt premium faster than any December meeting.