The Chancellor has avoided a negative reaction from the bond market to the Budget she presented to parliament today, with both 10-year gilt and 30-year gilt yields falling slightly.
Thirty-year gilts rose as she started her speech, after having dropped following the Office for Budget Responsibility’s accidental publication of their response to the budget. But stood at 5.23 per cent at the time of writing, down 12bps from today’s opening price of 5.35 per cent.
Ten-year gilts opened at 4.52 per cent, and fell through her speech to 4.39 per cent at the time of writing, a similarly modest decline.
Marcus Jennings, fixed income strategist, Global Unconstrained Fixed Income, at Schroders says: “Although the Chancellor delivered a Budget that was close to market expectations, providing a short-term relief rally, it has likely fallen short of allaying more long-term fiscal concerns for some investors.
“Ultimately the back loaded nature of the fiscal tightening announced today, combined with the lack of any bold moves to control the debt trajectory in the short run, will leave some investors not fully convinced of the UK’s long term debt trajectory. This is demonstrated by the Office for Budget Responsibility forecasting higher fiscal deficits in the next few years compared to projections from both earlier in the year, and prior to today’s Budget.
“For now, we prefer long UK duration positions towards the front end of the curve. This is based on our view that the Bank of England is likely to ease policy more aggressively, due to subdued growth, a sluggish labour market and continued disinflation, the latter of which was helped at the margin by today’s Budget.”
Oliver Faizallah, head of fixed income research at Charles Stanley, says: “Markets have taken the news in their stride for now. Following the OBR leak, gilts moved only a couple of basis points higher and have come back to flat – indicating investors see the revisions as manageable for now. The focus will remain on whether higher borrowing pressures gilt supply and complicates the path to rate cuts.”
