UK chancellor Rachel Reeves has now presented her first budget. Deep exhale. What does it mean for gilts? Tl;dr, it’s not a bondholder’s dream. But nor is it the stuff of nightmares. All was going so well for gilts. When Reeves stood up to speak in parliament on Wednesday, 10-year gilts had already rallied around 8 bps from Tuesday’s closing yield highs. By the time she sat down they’d rallied a further three basis points. And as we all know, prices rise when yields fall.
An entire rate cut has been expunged from the market’s forecast. Should the government be sad about this? On one level, yes — very. Higher interest rates means more transfers to the Bank of England to pay interest on reserves. It also means higher issuance costs for new debt. On another level, higher economic growth is . . .