A sell-off in the UK gilt market deepened for a second day today following rising fears among investors about increased borrowing announced by chancellor Rachel Reeves in the first budget for14 years by a Labour government.
Yesterday’s budget announcement led to a sharp rise in UK borrowing costs and the yield on a ten-year bond rising 0.15 percentage points to 4.5%.
Jonathan Unwin, UK head of portfolio management at Mirabaud Wealth Management, said: “Following months of leaks and speculation, markets seemed somewhat exhausted in the lead-up to the budget, and the initial positive reaction perhaps reflected that the chancellor was taking a fiscally tighter approach than she could have done.
“However, as it becomes clearer that government borrowing would again have to rise, reality is setting in that the Debt Management Office will need to issue more gilts than anticipated, with the Office of Budget Responsibility recognising a higher cash requirement of £30bn.
“As such, UK government bond yields have resumed their rise of recent weeks, and this is likely to continue until the Bank of England clarifies its outlook with respect to more rate cuts.
Edward Park, chief asset management officer at wealth management firm Evelyn Partners, said: “By announcing new fiscal rules, specifically re-defining ‘debt’, the chancellor has unlocked additional investment but this has in recent weeks also spooked the bond market which will need to absorb higher gilt issuance.
“As investors prepared for the budget statement, UK 10-year yields fell to 4.24%. Gilt yields fell further as the Chancellor unveiled a new ‘stability rule’ which means that the government will seek to bring the current budget into balance in 2030 and that net financial debt will fall in the third year of every forecast.
“The 10-year gilt yield rose slightly after the Chancellor sat down and at 4.34% stands 60bps higher than it was in mid-September, in part reflecting global bond market volatility.”
