Gilt yields
Memories of the downfall of Liz Truss are being resurrected as the UK bond market recoils after Labour’s first budget in 15 years.
UK 10-year gilt yields are up 12 bps to 4.47%, which is the highest since November 2023. It was a spike earlier in 2023 to 4.75% that pushed out Truss and her Chancellor. That said, I’ve always maintained that was more of a perfect storm that a pure reaction to the budget.
However in politics, perception can be reality.
Right now, the pound isn’t doing much but it climbed in Asia and is up 25 pips on the day to 1.2988. Given the breakout in yields, we could see this spilling over into the currency. Normally higher yields are a positive but that flips when there are real fiscal question. I’m not ready to go there yet as there are also some positives around growth and a hawkish central bank in place but look for outsized responses to UK data in the next month.