Bond Bombshell: UK Gilts Plummet as Labor Government Unveils Shocking Debt Plan
- UK government bonds fell as record bond issuance and fiscal stimulus plans from the new government could mean interest rates will remain higher for longer, leaving investors skeptical.
- Two-year Treasury yields jumped 10 basis points as traders pared back bets on how much the Bank of England would cut interest rates, with swaps now favoring bets...
- "This doesn't look particularly good," said Megum Muhic, a strategist at Royal Bank of Canada.
UK government bonds fell as record bond issuance and fiscal stimulus plans from the new government could mean interest rates will remain higher for longer, leaving investors skeptical.
Two-year Treasury yields jumped 10 basis points as traders pared back bets on how much the Bank of England would cut interest rates, with swaps now favoring bets on just one more rate cut this year, of 25 basis points. The UK plans to issue 297 billion pounds of gilts in the 2024-25 financial year, the UK Debt Management Office (DMO) said on Wednesday. Sixteen bond traders surveyed by Bloomberg forecast 293 billion pounds.
“This doesn’t look particularly good,” said Megum Muhic, a strategist at Royal Bank of Canada. “Both short-term and long-term gilt issuance forecasts will be higher than the market had previously expected.”
The prospect of rising debt issuance has weighed on UK government debt. On Wednesday, the 10-year British bond yield rose above 4.4%, hitting its highest level in nearly a year. The volatile moves caught investors off guard, with UK debt rising sharply ahead of Chancellor of the Exchequer Rachel Reeves’ budget, but falling quickly after the DMO plan was released.
UK government bonds fell as record bond issuance and fiscal stimulus plans from the new government could mean interest rates will remain higher for longer, leaving investors skeptical.
Two-year government bond yields jumped 10 basis points as traders pared back bets on the size of the Bank of England rate cut, with swaps now favoring bets on just one more rate cut this year, at 25 basis points. The UK plans to issue 297 billion pounds of gilts in the 2024-25 financial year, the UK Debt Management Office (DMO) said on Wednesday. Sixteen bond traders surveyed by Bloomberg forecast 293 billion pounds.
“This doesn’t look particularly good,” said Megum Muhic, a strategist at Royal Bank of Canada. “Both short-term and long-term gilt issuance forecasts will be higher than the market had previously expected.”
The prospect of rising debt issuance has weighed on UK government debt. On Wednesday, the 10-year British bond yield rose above 4.4%, hitting its highest level in nearly a year. The volatile moves caught investors off guard, with UK debt rising sharply ahead of Chancellor of the Exchequer Rachel Reeves’ budget, but falling quickly after the DMO plan was released.