"It depends how the bond market reacts. If the bond market reacts very badly the government will have to react if bond yields start to go up too much, he said. Zahn suggested that it would be unsustainable if the yield, or interest rate, on either 10-year or 30-year UK bonds reached 6%. Such high interest rates created a death spiral, he warned, meaning the government would hopefully act before yields rose that high."
"If [Reeves is] not going to tackle any of the big taxes, I don't see what she can do that the market will go fantastic, you fixed it', because she's not doing any spending cuts, said Zahn, who argued that a package of spending cuts and real tax increases would bring down gilt yields and help the government's funding needs."
Bond-market reaction could compel a second UK budget if investors are disappointed by the chancellor's fiscal plans. A sharp rise in gilt yields would force government action, according to a City investor. Yields near 6% on 10-year or 30-year bonds would be unsustainable and could create a ‘death spiral’. Current 30-year yields are about 5.35% and 10-year yields about 4.53%. The investor warns that without spending cuts and real tax increases, markets are unlikely to buy gilts and borrowing costs may rise. A package of spending cuts and tax rises could lower gilt yields and ease funding needs.
Read at www.theguardian.com
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