Truss Tax U-Turn Can’t Stop Bond Market Selling.
- Fears UK assets will come under further pressure next week
- Prime Minister’s actions fail to soften political criticism
- 30-Year Bond Yields Soar After Truss Press Conference
UK bonds were put up for sale last night as investors were unconvinced by Liz Truss’ attempt to undo the damage of the government’s mini-budget.
The selling occurred just as the Bank of England ended a £65bn intervention planned to end the market turmoil.
Now, UK assets will come under further pressure next week as the Prime Minister’s corporate tax U-turn and the dismissal of Prime Minister Kwasi Kwarten failed to soften her political criticisms or answer questions about the government’s finances. I have a concern.
Intervention: Governor Andrew Bailey refuses to extend bank bond-buying plans
Yields on countermoving 30-year bonds soared after Truss announced at a press conference that it was pulling back on its corporate tax plan.
Earlier in the day, bond markets were rising in anticipation of a U-turn. The 30-year yield, which represents the return investors demand to lend to the government, was as low as 4.25% yesterday morning but topped 4.8% by late afternoon.
That puts us on par with Thursday before speculation about Truss’ latest policy change began.
Yields on short-term government bonds also rose, with the pound dropping nearly 2 cents to $1.1153.
In equities, the FTSE100 gave up the more than 100 point gains seen earlier in the session to close just 8.5 points higher.
Investec economist Ryan Jajasaptra said: “Overall, the market doesn’t seem convinced that today’s announcement is enough. Plans to repeal the corporate tax and abolish the 45p top rate on income tax. has left the Government with £25bn in outstanding tax cuts from the £45bn originally advertised in the mini-budget.
Capital Economics chief economist Paul Dales added: Full confidence in financial markets.
It was the 30-year bond carnage when the Bank of England stepped in on September 28, pledging to buy up to £5bn of long-term bonds a day over 13 days.
The intervention seemed to work at first, but volatility erupted again. The bank stepped up its program last Monday, expanding it to include inflation-protected bonds and raising the daily cap to £10bn, he said.
But Gov. Andrew Bailey acted to quell speculation that it would extend beyond yesterday’s end date, rejecting a petition by a pension fund embroiled in the crisis. At the event, Bailey warned: you have to get this done.
Bank bond purchases reached £19.3bn in yesterday’s final daily auction. This includes £7.2bn of index-linked bonds and £12.1bn of traditional bonds.
“There has been a slight sigh of relief in UK assets over the past 24 hours,” said James Athey, investment director at Abrdn, adding: [UK bond] The market is probably already over.
https://www.dailymail.co.uk/money/markets/article-11317097/Liz-Truss-tax-U-turn-fails-halt-bond-market-sell-off.html?ns_mchannel=rss&ns_campaign=1490&ito=1490 Liz Truss Tax U-Turn Couldn’t Stop Bond Market Crash