Ten-year gilt yield hits five-month high after chancellor’s first Budget
UK borrowing costs climbed on Wednesday, reversing an initially positive reaction to the Labour government’s inaugural Budget, as investors were “caught unaware” by the level of additional borrowing needed to fund Rachel Reeves’ plans. The 10-year gilt yield rose 0.05 percentage points on the day at 4.37 per cent, a five-month high. The two-year yield was 0.08 percentage points higher to 4.34 per cent. Yields on the 10-year bond had initially fallen as low as 4.
The OBR also said that the scale of extra borrowing had not been fully anticipated by investors and was likely to result in higher interest rates over the next few years. Investors responded by scaling back their bets on rate cuts, with swaps markets now expecting three or four quarter-point rate cuts over the next 12 months, rather than four or five. This pushed up the yield on rate-sensitive two-year bonds.
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