Gilts back to where they were before Rachel Reeves’ tears
UK government bonds have settled back to prices seen before Rachel Reeves was seen crying at PMQs as bond markets were soothed by Keir Starmer’s warm words about the chancellor.
The prime minister said Rachel Reeves was a “great colleague” and re-affirmed she would be the chancellor for “a very long time to come”.
Bond markets appeared to be relieved by Keir Starmer’s interviews with the BBC on Wednesday night and Virgin Radio in the morning.
Ten-year gilt yields, which move inversely to prices and affect the cost of borrowing for the government, dropped by more than 10 basis points to 4.51 per cent on Thursday morning while longer term yields dropped to 5.3 per cent.
A day earlier, yields climbed by as much as 0.2 percentage points and the pound fell by one per cent on the scenes unfolding in parliament.
Opposition leader Kemi Badenoch challenged Keir Starmer on Rachel Reeves’ job security in government but the prime minister sidestepped questions and blamed the previous Conservative government for stagnation.
In interviews with broadcasters after the debacle, the prime minister emphasised Rachel Reeves’ emotions were due to a “personal matter” and that he would not “breach Rachel’s privacy”.
“There are moments that catch us off guard and if you’re in front of a camera for large periods of your life, unfortunately, that could be caught on camera in a way, if it had been anybody else at work, it would have not really been noticed.”
“She and I are absolutely committed to our fiscal rules and the economic stability that is so important to this country, and that is the rock on which we build everything else.
“On that issue, Rachel and I are in lockstep, and have been for years.”
Rachel Reeves not out of the woods
Investment strategists warned that they were not yet confident about the government’s authority over Labour backbenchers.
AJ Bell’s Dan Coatsworth said the sell-off on Wednesday was a signal from the City that it was less confident about the government’s fiscal policy.
“It was an electric shock for investors but today’s rebound suggests that the crisis has been averted, at least for now,” Coatsworth said.
“UK economically-sensitive assets were in relief mode, including a rally in housebuilders and banks.
David Roberts, head of fixed income at Nedgroup Investments said bond market turmoil on Wednesday was a “flashback” to the days of Liz Truss’ short tenure as prime minister.
“Less than two years ago the UK actually paid less to borrow than the US. Now 10-year UK borrowing rates may well move to 110 per cent of the US equivalent, putting further strain on the public purse.”
The government is putting up to £105bn aside on debt interest payments though City analysts fear higher costs of borrowing could further eat into Rachel Reeves’ headroom.