Significant turmoil is currently affecting (2.9.25) the markets of London, with the yields of British government bonds jumping to a 27 -year record high and the shares and the pound being plunged.
Bloomberg analysts say that nothing has really changed in terms of the United Kingdom’s financial prospects and that there was no specific data publication or comments from policymakers to expedite the sale. It may be more a matter of psychology, the same sources note.
The performance of the 30 -year gold counterpart that reaches the highest level of this century is certainly not a good advertising for the UK’s public debt, and the market merely expresses investor concerns about fiscal policy.
It is also worth noting that the markets were quite sluggish during the summer. The pound has been largely negotiated sideways and the FTSE 100 has dropped to record level, and market volatility has decreased. That could be the reason why nervous bond markets have so strongly affected the climate today.
The pound has fallen by 1.2% and is negotiating below $ 1.34. The FTSE 100 has fallen by 0.5%, while the FTSE 250 has dropped by 1.6%.
It is clarified that when gold bonds were sold in the midst of the Liz Truss mini budget in 2022, they peaked at around 4.7%. Now they are over 5.6%. This year there has been a number of increases, first in January, as investors were worried about the government’s financial situation, then in April due to Trump’s duties and again last week.
Today’s rise is part of a global fluidization. Yields have increased in the US. Performances of 30 years of French and German bonds have been at their highest levels since 2011, when the European economy has faced public debt crisis. The increases in their bond yields are actually larger than those of the United Kingdom, although the level remains lower.
Concerns about the UK’s fiscal image are in the spotlight. The budget is about two months away and Finance Minister Rachel Reeves is facing a fiscal black hole that is estimated to reach £ 51 billion. Higher returns will increase the cost of government debt service and exacerbate the problem. Observers say the government must regain its confidence and make reliable, structural changes.
The picture is burdened with shares. Large utilities and consumer stables – which are often considered bond substitutes, given the relative security and their constant returns – are below the FTSE 100. The FTSE 250 has suffered even greater decline: they tend to export less and import more, so they are particularly affected by the weaker. Indeed, the fall of the pound at the same time with gold bonds is not a general sign of confidence in the United Kingdom.
As all this is happening, another reduction in interest rates by the Bank of England seems increasingly unlikely, the speculation about whether gold bonds could exceed 6% this year, and the government raised the record amount of 14 billion pounds in 10 years.