UK bond yields rise: What it means for mortgage rates, savings and your money

Most of us will not spend too much time thinking about bond yields and - most likely - you have no idea what they are, but they can influence everyday money matters such as mortgages, pensions and savings.

And right now, bond yields are getting a lot of attention because they have reached highs not seen since around 2008.

UK bonds are a type of investment known as Gilts and it is how the UK government borrows money. Yields are the rate of interest received by those owning the bonds.

More broadly, however, the movement in yields are seen by markets as indicators of future inflation and interest rate expectations.

This can affect everything from mortgage rates and credit cards to savings accounts and pensions.

Here’s what the current rising bond yields could mean for your money...

What are bond yields and why are they rising?

Bonds are a way for companies and government to borrow money - UK government bonds are specifically known as Gilts. The yields are the interest investors receive on the bonds.

When bonds are sold off, prices fall and yields rise.

UK gilt yields have in part been pushed higher by investor concern that inflation could remain higher than expected, and the government's growing debt levels, as well as the possibility that interest rates could stay higher for longer.

How do rising bond yields affect mortgage rates?

Mortgage rates and other forms of borrowing tend to rise when bond yields rise.

This is partly because lenders themselves are facing higher borrowing costs which they will look to pass on.

The recent rise in yields could be a signal that costs or home loans may start pushing up over the coming weeks.

If you are approaching the end of a mortgage deal, it could be a good idea to start assessing your options.

You can often lock in a deal around six months in advance, giving you some protection if rates rise.

A mortgage broker will be able to help you assess your options.

You could also see credit card, and other types of borrowing costs rise so now could be a good time to check in with your finances and reduce costs or switch to cheaper deals where possible.

What do rising bond yields mean for savings?

Rising bond yields could mean that rates on cash returns will rise for savers.

This is because banks and building societies could need to offer more competitive savings rates to attract deposits.

However, savings rates are also affected by interest rates and competition between providers.

It's always worth checking if you can get a better return on your money, so if you have not moved savings for some time, now is the time to look.

What do rising bond yields mean for pensions?

Changes in the stock market and investment can be a good prompt to check in on your pension and if it's on track with your expectations.

However, it's not a good idea to react based on short-term market changes.

A defined contribution pension is usually invested in funds, which may include government bonds.

Even if values fall, over the long term they can rise back up.

Annuities are a type of retirement income priced on UK Gilt yields. Higher gilt yields means higher annuity rates.

If you are close to retirement, now could be a good time to check in with an independent financial adviser to go through your options.