The value of the pound has sunk – as the cost of 30-year government borrowing reached a high last seen in 1998.

The so-called spot rate saw one pound buy $1.336 on Tuesday, a low last seen in early August, and down from $1.353 earlier in the day.

Despite the dip, it’s still higher than the vast majority of the past year: in early September 2024, a pound bought $1.31.

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The decline, however, means sterling is on course for the biggest one-day drop since April, when Donald Trump’s announcement of country-specific tariffs spooked markets.

The drop was similarly steep against the euro, with a pound momentarily buying €1.1486, a low not seen since November 2023, nearly two years ago. It’s also a fall from €1.1586 earlier in the trading session.

Before the so-called liberation day announcement, £1 equalled nearly €1.19.

It comes as the yield – the interest rate demanded by investors – on 30-year government bonds – loans taken by the state – hit 5.72%, the highest rate this century.

Why?

Yields are rising across the globe in the face of weak economic growth and the US trade war.

Investors are also concerned about UK government finances as Chancellor Rachel Reeves battles to stick to her fiscal rules to bring down debt and balance the budget.

High inflation and increased public debt from the pandemic have left a deficit between state spending and income.

There have been high-profile government U-turns on winter fuel payments and welfare spending cuts that have meant the chancellor has to look elsewhere to meet her self-imposed fiscal rules.

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More expensive interest payments from rising bond yields have meant the country is stuck in a cycle of rising debt.

Today’s rises to the cost of government borrowing could not have come at a worse time for the public finances.

While a £14bn sale of new 10-year government debt – a record sum – was completed, it was achieved at the highest yield since 2008.

Lale Akoner, global market analyst at investment platform eToro, said of the auction: “For the government, this creates a paradox – market confidence in UK debt is robust, but financing that debt is increasingly expensive, constraining budget flexibility and raising the stakes for fiscal discipline ahead of the autumn budget.”

The yield on 10-year gilts, as they are known in the UK, later rose to its highest since January at 4.825%, up on the day but in line with their transatlantic equivalent, US Treasuries.

The global bond sell-off was also being reflected on stock markets.

The Dow Jones Industrial Average and tech-focused Nasdaq were both down by more than 1% at the open on Wall St.

In Europe, Germany’s DAX was 2% lower while the FTSE 100 was just 0.6% down as it is less exposed to declines in technology stocks which have accounted for much of the value growth seen over the summer.

The flight from risk also saw the spot price of gold, traditionally a safe haven for investors in times of uncertainty, briefly climb to a new record high of $3,578.40 per ounce.

Nestle shares opened down more than 2.5% after the maker of Nescafe, Cheerios, KitKat, and Rolos dismissed its chief executive after an investigation into an undisclosed romantic relationship with an employee.

On Monday night, Nestle announced that the immediate dismissal of Laurent Freixe, effective immediately, following the investigation into the relationship, with a direct employee, which had breached the company’s code of business conduct.

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The replacement for Mr Freixe was announced as being Philipp Navratil, a long-time Nestle executive and former head of Nespresso, the brand of coffee machines owned by Nestle.

It’s the second CEO departure from the Swiss food giant in a year.

Mr Freixe’s predecessor, Mark Schneider, was suddenly removed a year ago, and in June, the longstanding chair, Paul Bulcke, announced he would step down in 2026.

No further detail on the relationship was released by the company, nor was additional information on whom the person Mr Freixe had the relationship with.

Mr Bulcke, who led the investigation, said: “This was a necessary decision. Nestle’s values and governance are strong foundations of our company. I thank Laurent for his years of service at Nestle.”

Mr Freixe had been with Nestle since 1986, holding roles around the world, including chief executive of Zone Latin America.

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Nestle’s shares, a bedrock of the Swiss stock exchange, lost almost a third of their value over the past five years, performing worse than other European stocks.

The appointment of Mr Freixe’s had failed to halt the slide, and the company’s shares shed 17% during his leadership, disappointing investors.

Thames Water’s largest group of creditors is to offer an additional £1bn-plus sweetener in a bid to persuade Ofwat and the government to pursue a rescue deal with them that would head off the nationalisation of Britain’s biggest water utility.

Sky News has learnt that the senior creditors, which account for roughly £13bn of Thames Water‘s top-ranking debt, will propose this month that they inject hundreds of millions of pounds of new equity and write off a substantial additional portion of their existing capital.

In total, the extra equity and debt haircut are understood to total roughly £1.25bn, although the precise split between them was unclear on Monday evening.

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The numbers were still subject to being finalised as part of a comprehensive plan to be submitted to Ofwat, according to people close to the process.

Thames Water has about 16 million customers and serves about a quarter of the UK population.

The creditor group, which includes funds such as Elliott Management and Silver Point Capital, is racing to secure backing for a deal that would avoid seeing their investments effectively wiped out in a special administration regime (SAR).

Sky News revealed last month that Steve Reed, the environment secretary, had authorised the appointment of FTI Consulting, a City restructuring firm, to advise on contingency planning for a SAR.

On Monday, The Times reported that Rachel Reeves, the chancellor, had reaffirmed the government’s desire to see a “market-based solution” to the crisis at Thames Water.

The company’s main group of creditors had already offered £3bn of new equity and roughly £2bn of debt financing, which, alongside other elements, represented a roughly 20pc haircut on their existing exposure to Thames Water.

On Tuesday, the creditors are expected to set out further details of their operational plans for the company, in an attempt to allay concerns that they are insufficiently experienced to take on the task of running the UK’s biggest water company.