The yield on 10-year UK government bonds rose 0.06 percentage points by lunchtime in London to 5.515 percent, the highest level since July 2007 as the global financial crisis was unfolding. Yields on 20- and 30-year gilts also rose significantly, reaching levels not seen since 1998.
The move is part of a broader selloff in government bonds across major economies, intensified by surging oil prices and the unresolved Middle East conflict. France has been hardest hit as Paris struggles to pass its budget, but the selloff has been widespread.
Economists believe rising borrowing costs and a weaker growth outlook have wiped out around half of the 24 billion pound buffer against Labour's fiscal rules that Healey's predecessor, Rachel Reeves, built up at the time of her spring statement in March, and perhaps significantly more.
Healey is expected to raise taxes at the budget to partly rebuild that cushion, as well as to fund policy interventions including a six-month VAT cut on electricity bills and a modest energy support package for the poorest households.
However, some economists are warning the chancellor not to go too far. Andrew Wishart of Berenberg Bank said: "Raising taxes to keep the surplus close to the size it was in the March forecast (ie to 'maintain the headroom') would do unnecessary damage to economic incentives." He argued that gilt yields are likely to come back down over the next year, with the Bank of England likely to make fewer rate rises than the four that investors currently expect.
The Bank is widely expected to raise interest rates at its November meeting to tackle surging inflation, echoing moves already made by the European Central Bank, Federal Reserve and Bank of Japan. Investors appear anxious about higher inflation and runaway government spending. Kristalina Georgieva, managing director of the International Monetary Fund, has urged governments to tighten their belts in response to rising bond yields.