Worst of gilt sell-off not yet behind US as Sterling enjoys mild rebound
We’ve seen a mild rebound in the pound since Tuesday, with sterling recovering around half of its losses against the dollar in the past few trading sessions. Bonds have bounced back globally and the 30-year gilt yield, which earlier in the week spiked to its highest level since 1997, has dropped more than 10 basis points to back below 4.9%.
Yet, risks remain elevated, with the bond vigilantes likely to be circling like vultures going into the autumn budget.
It would be foolhardy of us to bet that the worst of the gilt sell-off is behind us.
Chancellor Reeves has given herself plenty of time to get her ducks in a row, opting for the latest possible date to call her autumn budget. But, markets are fickle, quick to judge and slow to trust, and will punish the government if they fail to deliver a plan that guarantees fiscal sustainability.
Further tax hikes are almost certain in order to plug the black hole in the public coffers, but that alone won’t wash, with investors baying for spending cuts, wary of a perpetual tax trap that could choke the life out of the UK economy.
In other news, it looks as though the deputy PM may well lose her job today due to underpaid taxes, which while not a good look for the government, will not likely have any impact on markets.”
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
