UK debt rates rise as pound plunges against dollar

Yields on UK debt jumped higher today and the pound followed the US dollar again, boosted by investors sweating over government taxes and the borrowing craze.

Britain’s 30-year gilt yield jumped six basis points to 5.048%, the highest since 1998.

Investors were demanding a better return before the government today sold off a slice of long-term debt.

The pound slipped 0.4% against the US dollar to hover around the lowest level in 37 years, but is above the all-time high of nearly $1.03 hit earlier this week.

UK 30-year gilt yield

UK 30-year gilt yield hits highest level since 1998 (Source: CNBC)

The pound is down more than 20% against the greenback this year and around 6% against the euro.

Traders expect the Bank of England to raise interest rates sharply in response to soaring inflation, which hit a 40-year high of 9.9%, as well as the reduction in inflation. taxes and government borrowing madness.

“One reason for the gilt explosion is the sovereign premium – markets clog their noses at unfunded, untargeted tax cuts – the other is simply that the market thinks the budget will force the Bank to tighten much more than it had expected,” said Neil Wilson, chief market analyst at Markets.com.

Last Friday, Chancellor Kwasi Kwarteng signed tax cuts worth £45billion, including scrapping the top 45% tax rate and canceling corporation tax and National Insurance increases.

No public spending cuts have been announced, which means the government will have to borrow more money.

Kwarteng tried to calm city leaders and Tory MPs’ concerns about market jitters yesterday. According to Sky News, it will today ask bankers not to short the pound, however, the Treasury has denied the meeting is taking place, according to Reuters.

Related: Will Oil Prices Rebound Above $100 This Year?

Last night the International Monetary Fundthe global lender of last resort, urged the chancellor to rethink his fiscal plans to avoid a rising inflation trend.

Governor Andrew Bailey and co have raised rates by a record 0.1% to 2.25% since December, including two successive 50 basis point hikes.

Threadneedle Street chief economist Huw Pill said yesterday the recent turmoil in the UK market, which saw the pound hit a record high against the greenback and soaring debt costs, will require a response “significant” of the Bank.

This likely means a wide-ranging rate hike of up to 100 basis points at the next monetary policy committee meeting on November 3.

Markets are abandoning bonds, pushing yields higher, in response to increased government borrowing. Yields and prices move in opposite directions.

By sydney

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John A. Bogar