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British government bond yields fall after Sunak’s budget update

© Reuters. British five pound banknotes are seen in this picture illustration taken November 14, 2017. REUTERS/ Benoit Tessier/Illustration

By Stefano Rebaudo

(Reuters) – British government bond yields extended their fall on Wednesday after finance minister Rishi Sunak gave a budget update.

Sunak cut taxes for workers and reduced a duty on fuel but Britain’s government also announced it would slash its bond sales in the coming financial year.

“Yields are dropping as the Chancellor announced a budget that doesn’t involve a significant reduction of the UK tax burden,” Kallum Pickering, senior economist at Berenberg, said.

“If you look at taxes as a share of GDP, they will rise by more than was previously expected,” he added.

UK’s 10-year gilt yields dropped 6.5 basis points (bps) on the day to 1.645%, while the interest rate sensitive 2-year yields fell 8 bps to 1.33%.

“The Chancellor has announced tax cuts that will be offset by higher nominal income,” Pickering argued. “That soothed worries about increased public spending, which might have boosted yield rise expectations.”

Britain’s government said it would take its bond sales back towards pre-pandemic levels, with the share of index-linked gilts falling to an all-time low as inflation soars.

British government bond yields fall after Sunak’s budget update

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