The UK government bond sell-off eased after Rachel Reeves’ announcement of this Autumn’s Budget.
Following this morning’s announcement that the Budget would take place at the end of November the UK 30-year gilt dropped to below 5.7 per cent.
This comes after a sharp rise in global bond markets in recent days, hitting highs not seen since the late 90s.
Richard Carter, head of fixed interest research at Quilter Cheviot, said: “While much of the attention has been on the 30-year yield hitting multi-decade highs, governments typically borrow across the maturity spectrum and the rise in shorter to medium-dated has been less pronounced.
“But higher borrowing costs for the state mean it becomes more expensive to finance existing debt and harder to fund new spending.
“For the public, that translates into tougher fiscal choices for the government, with less room to ease the tax burden or boost investment.
“This only adds to the headache facing Rachel Reeves as she prepares her second budget, with markets making clear that borrowing to fill the black hole in the public finances will be difficult and may ultimately point to further tax rises.”
Carter added some savers could see a ‘silver lining’ and benefit from better yields on fixed income investments, while retirees could secure higher income through an annuity compared with a few years ago.
David Roberts, head of fixed income at Nedgroup Investments, said the high rates were not putting people off buying bonds.
He said: “Yesterday told a very different story, as the UK saw its largest-ever gilt issuance with £14bn issued, met with record-breaking demand of £150bn.
“In the US, corporate bond issuance hit a record of around $46bn and, across Europe, sovereign and corporate debt supply exceeded €40bn, another milestone.
“Now, you can interpret this in two ways. Firstly, there’s a surge in supply, which can pressure prices.
“Secondly, and more importantly, there’s extraordinary demand – investors are actively seeking yield in a high-rate environment.”
Roberts said the slight fall in gilt prices today was a reaction to “more upbeat economic numbers”.
Fred Repton, senior portfolio manager on the global fixed income team at Neuberger, said this pick up in new issuance was due to “back to school” day for global investors as Labour Day in the US ends the summer holiday season.
He said: “One should not draw too many conclusions from one extremely active day for issuance.
“What can be said though is that market participants are again focused on deficits and political risk and this theme is likely to continue far into the year as the UK budget is now set to be on November 26, a long time from now.”
tara.o’connor@ft.com
What’s your view?
Have your say in the comments section below or email us: ftadviser.newsdesk@ft.com