Yields on 30-year U.K. government bonds, or gilts, rose to their highest since 1998 on Monday, driven by inflation fears amid rising oil prices and concerns about government borrowing levels ahead of the U.K. budget.

Brent oil prices traded above $107 a barrel as the conflict in the Middle East widened. Last week, Iran-backed Houthi militants seized key territory around the Bab al-Mandeb Strait, an important route for Saudi Arabia's oil exports, threatening further disruptions to global energy supply.

Thirty-year gilt yields rose more than two basis points to a high of 5.951%, LSEG data showed. Ten-year gilt yields traded at 5.360%, staying close to Friday's 19-year high of 5.406%.

Traders fear that oil prices could remain elevated, keeping inflation high over the long term and raising the risk that the Bank of England will need to raise interest rates in the coming months.

The BOE is expected to keep interest rates on hold Thursday. However, markets fully priced in a total of four U.K. rate rises by June 2027, up from two a week ago, LSEG data showed.

U.K. fiscal uncertainty ahead of the budget on Oct. 28 is also contributing to rising gilt yields.

Weak public finances and rising spending needs could push the government to issue more debt, amid already elevated levels of public borrowing.

"The autumn budget may generate further volatility in gilts," Stefan Koopman, senior macro strategist at Rabobank, said in a note.

The U.K. government's outstanding debts total close to 94% of annual economic output, and economists expect the budget deficit to be around 4% of gross domestic product in the current fiscal year.

"Conjuring up a budget which shows enough fiscal restraint to avoid scaring the gilt market...will take some doing," Societe Generale chief forex strategist Kit Juckes said in a note.

Gilt yields are also rising in line with a global trend that is lifting developed-market bond yields to multiyear highs.

Factors pushing yields higher include inflation worries due to the war in the Middle East, resilient economic data, and abundant bond supply coming from both governments and companies, Francesco Maria Di Bella, rates strategist at The Investment Institute by UniCredit, said in a note.