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UK bonds suffer biggest drop since March 2020 as Truss becomes prime minister

David Milliken

LONDON (Reuters) – The bond market welcomes the arrival of Britain’s new prime minister, Liz Truss, in what has become a long-term Biggest drop in national debt – 25 Global financial markets turmoil due to pandemic in March 2020.

If Truss continues to report on plans to freeze household energy bills at current levels, an additional size of debt may be required, funded by government-backed loans to energy providers.

The scheme could cost about 092 billion pounds ($78 billion), according to a person familiar with the matter, but the exact amount will depend on its duration, wholesale price and market demand.

Some 25 multi-billion pound tax cuts and support for rising energy bills Additional support for affected businesses could push up total borrowing.

Deutsche Bank (ETR: DBKGn) said it expects the “vast majority” of energy support measures and other stimulus to be funded by increased borrowing.

“Increased fiscal support should increase aggregate demand in the medium term, increasing inflation and ultimately the amount of tightening needed by the central bank,” wrote Deutsche Bank economist Sanjay Raja. .

30-year Treasury yields, which are sensitive to increased issuance and longer-term inflation, are almost up 14 one basis point and GMT 116 is 17 basis points higher by 3.374%, on track for the biggest one-day gain since March 2020.

The daily underperformance of bonds compared to German debt was also the second largest one-day gain since March 2020, and they offer a higher 164 basis point yield premium than their German counterparts, t since June 164 the largest since the day after the Brexit referendum.

Benchmark1515 – 1-year gilt yield breaks past previous high 3.25 % at 2016 peaked at 3.092%, the highest since July 2014, before returning to the position 13 basis points rose 3.78%.

Energy bill cap will prevent inflation from rising further in the short term, Economist at Barclays Bank (LON: )BARC) and HSBC said this could reduce the urgency of the BoE rate hike.

Two-year gilts – sensitive to recent inflation and BoE rate decisions – rose on the day, Pushed the yield down 6 basis points to 3.13%.

Financial markets are pricing in a three-quarter point increase in the probability that the Bank of England will make its biggest rate hike in 30 years 25% The volume is relaxed to 2.5%.

The Bank of England may start issuing value 10 £1bn quarterly later this month to And the exchange rate of the pound against the dollar plummeted.

The UK did see strong demand when it auctioned off £3.5bn of three-year bonds earlier on Tuesday. However, the yield tail — a measure of the success of below-average bids — was the highest since June.



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