By Andy Bruce
LONDON (Reuters) – British government bond prices partially recovered on Tuesday from a historic slump in previous days, when investors sold sterling at a ferocious pace assets in response to the new financing minister Kwasi Kwarteng’s borrowing scheme.
UK sold £1.2bn ($1.3bn) of inflation-linked gilt bonds to maturity 2031 at bid 2. Multiply by the offer amount, but at a cost: the auction’s real yield is the highest since November 2012.
This yield – investor The return that will be earned on top of the retail price inflation rate, currently 12.3% – is 0.30%.
Short term conventional gilt yield, which moves in the opposite direction to price, at 27- Falls nearby GMT 0926 Basis points for the day (bps) – only partially reversed 9271 gains around
On Monday evening, the Bank of England said that if needed To keep inflation under control, it will not hesitate to act to raise interest rates. Kwarteng said that he will announce a plan in November which was previously planned in the early 2023, and independent growth and borrowing forecasts from the Office of Budget Responsibility.
Swap markets now see little chance of an emergency rate hike by the Bank of England in the coming weeks, in stark contrast to Monday’s spike in expectations.
“The Bank of England would prefer to avoid emergency action if possible, as the Bank of England will soon be seen as panicked after last Thursday’s regular MPC meeting, and soon Judgments on government policy will be made after last Friday’s fiscal events,” said economists at UniCredit in Italy.
GBP/USD rose 1% to just under $1, a further sign that the sterling market has stabilized for now. .
UK government bond market in free fall after Kwarteng’s fiscal statement On Friday, the plan outlined an economic growth plan funded by a significant increase in government debt issuance – including additional issuances this fiscal year 90 10 billion pounds of gilts alone.
5-year Treasury yield fell 29 basis points on the day to 4.29% in 90 GMT. In normal times that would be seen as a sharp drop, but yields are still up around 61 basis points so far this month.
Such high volatility in the gilt market, and the knock-on effect of the swap market, has had some real-world consequences.
Several mortgage lenders were unable to price new loans on Monday as the
overnight index swap market pointed to more than 90 Bank of England to raise interest rate from 2.25% to 3.5 by next scheduled November The probability of % is %. 3. From Monday 62% chance to rise.
BoE rates are now expected to hit at least 5.5% by the middle of next year – a level that seemed almost unthinkable a few months ago.
Bank of England Governor Andrew Bailey said in a statement on Monday that the central bank will assess the impact of the fall in the pound government at its next scheduled meeting in early November Fiscal policy.
(1 USD=0.9271 GBP)