UK 10-year gilt rallies in reaction to Rachel Reeves's budget
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UK government bond yields rallied in the face of Labour's first budget in 15 years, as chancellor Rachel Reeves set out a plan for balancing the books and new fiscal rules.
The yield on the 10-year gilt headed to about 4.41%, erasing declines earlier in the session and hitting their highest point since November
Gilt prices tend to change with the perception of whether the bond can be repaid, but also depend on the interest rates central banks set. When the base interest rate changes, the price of a gilt tends to change too. Yields tend to move inversely to prices.
A small reaction to the budget in bond markets could be seen as a success for the government in shoring up confidence in their ability to manage the economy.
"Markets will have to grapple with higher borrowing," said Deutsche Bank chief UK economist Sanjay Raja. "Borrowing will be nearly ￡30bn per annum more by the end of the decade, a lot of that driven by investment spending. For now, markets remain broadly sanguine on the chancellor’s plans.
Read more: Pound whipsaws as traders react to Labour's first budget in 15 years
"But today’s budget signals a lot more gilt issuance to come, relative to previous expectations."
In recent days, bond markets have been bracing for upcoming policy announcements — particularly surrounding government borrowing.
Gilt prices have also fallen in recent weeks, propping up yields on the 10-year to its highest point since June — at 4.32% as of yesterday.
Neil Wilson, chief market analyst at Finalto, said there had been "lower issuance than some had feared but the devil is in the detail and longer-term forecasts…at last look it backing up…and importantly the spread with the US Treasury had widened a bit and flipped positive — ie UK yield premium to the US…is this a growth premium!?"
The calm response comes in contrast to Liz Truss and Kwasi Kwarteng's budget over two years ago, which sent the pound into a tailspin and triggered a selloff, alongside emergency measures by the Bank of England.
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