Spending Review: Gilt yields dip in relief for Rachel Reeves
Gilt yields fell in the minutes following the publication of the government’s Spending Review, paring back earlier rises and raising hopes the Chancellor had placated markets over her splurge on infrastructure, energy and healthcare spending.
The 10-year UK government bond yield nudged down from 4.61 per cent to 4.55 per cent after the Spending Review was published. 5-year gilt yields fell from 4.1 per cent to 4.05 per cent, while 2-year gilts fell from 3.96 per cent to 3.9 per cent. Yields remained higher than were they were yesterday, with the later dip thought to be more to do with US inflation data, which came in lower than expected.
The pound edged up slightly against the dollar from $1.349 to $1.352.
Yields are lower than the peaks they reached at the beginning of the year, but they remain marginally above the rates they rocketed to following the disastrous Liz Truss Mini Budget.
Bond yields, which move inversely to prices, are a measure of how costly it is for the government to borrow money.
In total, the Spending Review commits the government to an extra £190bn more in the day-to-day running of public services over the course of the Spending Review period, with total departmental budgets growing by 2.3 per cent a year in real terms.
Matthew Amis, Investment Director, at Aberdeen, said: “Today’s spending review was not a full-blown fiscal event like an Autumn Budget or even a Spring Statement, however after the last couple of years, any fiscal event leads to nervousness across the gilt market.
“Going into today, the market was interested in two things; are tough decisions being made on day-to-day spending and will the investment plans generate much needed growth? After all growth and positivity is what the UK needs.
“The answer is ‘enough for now’. Today’s Spending Review offered just enough detail and security for the gilt market to focus away from the UK’s fiscal situation until the Autumn at least.
“What today’s statement doesn’t do is make the balancing act facing Chancellor Reeves in the Autumn any easier. Scrutiny will be high and any mis-step from the Chancellor will be reflected in higher gilt yields. Big decisions are required from Chancellor Reeves in the Autumn, all of those decisions will be made somewhat easier if gilt yields head lower from here.”