"Post-Budget, gilt markets seem reasonably quiet though we have seen a slight tick-up in yields this morning after declining yesterday. Sterling trades at its best in a month against the dollar, though has come back off the overnight highs this morning to $1.3223. EURGBP has seen less of a move as it ran up against the 50-day SMA support, a three-week high for the pound."
"The Budget was frontloaded with spending and backloaded with paying for it. Borrowing will rise, according to the OBR and issuance next year is sharply higher, according to the DMO. So why are gilt yields down and the pound at a month high? It's probably down to a reduction in the political risk associated with the Starmer/Reeves leadership, which has been key to holding the bond market on a relatively tight leash."
"There are assumptions about growth that are too optimistic and about welfare policy that probably won't stand up to reality or scrutiny, moreover there is myriad of complications with implementation of say, the ISA changes, or salary sacrifice reform. Take the Send budget - the OBR warns of a "significant fiscal risk" as the government has not set out how it plans to pay for extra spending. There is a black hole looming at the Department for Education."
Markets reacted calmly to the Budget with gilt markets relatively quiet despite a slight morning rise in yields and sterling at a one-month high against the dollar. EURGBP rose toward the 50-day SMA while the FTSE 250 climbed and the FTSE 100 slipped early. The Budget frontloaded spending and deferred many pay-fors, prompting higher borrowing per the OBR and significantly increased issuance per the DMO. Reduced political risk under Starmer/Reeves likely helped lower gilt yields. Material fiscal and implementation risks remain, including optimistic growth assumptions, welfare pressures, ISA and salary sacrifice complications, and an SEND funding shortfall.
Read at London Business News | Londonlovesbusiness.com
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