Bond Market Blues: UK 10-Year Auction Hits Nearly 1-Year Low Amid Budget and US Election Jitters
UK Bond Auction Sees Lowest Demand in Almost a Year
The demand for British 10-year bonds sold on November 5th was at its lowest level in almost a year, reflecting the fiscal expansionary budget announced by Treasury Secretary Reeves on October 30th and investors’ deep-seated concerns about the US presidential election.
The British government issued 3.75 billion pounds (approximately 741 billion yen) of 10-year government bonds, with a bidding ratio of 2.81 times, the lowest level since December of last year. In comparison, a similar auction held last month saw demand for 3.25 times the planned issue amount.
British bonds fell sharply in the market last week due to concerns about rising prices and fiscal pressure, following the budget proposal to increase borrowing and encourage investment. Ratings agency Moody’s Ratings stated that the UK budget is the most aggressive fiscal stimulus since the pandemic and poses new challenges to the public finances.
Mark Nash, head of fixed income alternatives at Jupiter Asset Management, noted, “There seems to be some concern in the market that the budget is not going to work.”
This was the second auction for British bonds since the Budget was announced. Although last week’s 30-year green bond auction attracted strong demand, and demand remained strong for the September auction, the recent auction saw a decline in interest.
The British government’s revised fiscal plans for this year, which include issuing 297 billion pounds of government debt, its second largest ever, may have contributed to the decline in demand. The yield on the 10-year Treasury note rose more than 20 basis points (bp, 0.01%) last week, the highest level in a year.
The US presidential election, held on November 5th, also played a role in the decline in demand. U.S. government spending is expected to increase regardless of the outcome, but the risks are higher if former President Trump becomes president. If that happens, the impact would be felt globally, pushing borrowing costs even higher.