Unlock Editor’s Digest for free
Roula Khalaf, editor-in-chief of the FT, selects her favorite stories in this weekly newsletter.
The UK government’s borrowing costs rose on Friday after stronger-than-expected US jobs data triggered a global slowdown in bond markets, fueling a sell-off in gilts.
The yield on 10-year government bonds rose 0.07 percentage points to 4.88 percent, but remains lower than the 4.93 percent touched Thursday, which was the highest level since 2008. Yields move inversely to prices.
The pound, which fell 0.5 percent on Thursday, fell 0.7 percent to $1.221 after jobs figures, which came in better than economists’ expectations, suggesting the central bank American will be slower to reduce interest rates.
Government securities have suffered in recent sessions amid a global rise in government bond yields driven by persistent inflation in some major economies.
Gordon Shannon, portfolio manager at TwentyFour Asset Management. said the gilt market “needs Reeves to demonstrate some understanding of the tougher global environment by reducing spending, pending a decline in sterling to make gilts sufficiently attractive to international buyers.”
The UK has been particularly hard hit by the global bond sell-off as investors worry about the government’s heavy borrowing needs and the growing threat of stagflation, which combines anemic growth and persistent price pressures.
The credibility of the government’s economic plans is vulnerable to strains in the bond market after Chancellor Rachel Reeves left herself just £9.9bn of leeway from her revised fiscal rules in the government’s budget. fall of last year.
Pooja Kumra, UK rates strategist at TD Securities, said how Reeves addresses the lack of fiscal space would be key.
“Investors are wondering what the Chancellor’s next option will be. . . spending cuts, more borrowing or taxes,” she said.
The sale of government securities effectively wiped out Reeves’ fiscal space, economists said. The level of bond yields is an important determinant of fiscal space, given its implications for the government’s interest bill, which exceeds £100 billion a year.
Labor sought to reassure investors this week, with Darren Jones, the number two at the UK Treasury, telling MPs on Thursday that the government was committed to “economic stability and sound public finances”.
