UK bond market shakes after new budget raises eyebrows
British government bonds took an unexpected turn as markets processed new budget details. Investors changed their bets on future interest-rate cuts while UK debt became less attractive compared to German bonds
British bond prices went down-hill today as the new budget showed more spending and borrowing plans. The 10-year gilt yield jumped up-and-down (making one of its biggest swings this year) and ended up higher by 3.5 basis-points
The gap between UK and German bonds hit its highest point since last summer: showing that investors want more money to hold British debt. Rob Wood from Pantheon Macroeconomics thinks the budget might change how the Bank of England thinks about rates; especially since Andrew Bailey hinted at wanting to cut them soon
Markets changed their mind about next weeks meeting: theres now a smaller chance of interest rate cuts. Traders see about four cuts coming in the next year instead of more they expected before; the two-year bond yield (which moves with rate predictions) went up to 4.36%
Laurence Mutkin from BMO explains the market moves: “The lens through which you have to look at fiscal numbers is what does it means for monetary policy because thats what drives the front end of the curve“ [[head of EMEA rates strategy]]. The new spending plans made investors think rates wont drop as fast as they thought
