UK borrowing costs cool after Truss quits as shortest serving PM ever

UK borrowing costs scaled lower today after Liz Truss exited as the shortest serving prime minister on record at 44 days.

Yields on the 10-year gilt dropped around 27 basis points to 3.8 per cent after Truss resigned in the early afternoon. They had been trending higher during early trading.

Rates on the 30-year gilt, which has come under severe pressure in the month since the mini-budget, nudged lower.

Yields and prices move inversely.

Truss left office today after a night of confusion and turmoil in parliament and weeks of chaos on UK financial markets sparked by her botched mini-budget that left her premiership in tatters.

Despite surviving a bruising PMQs yesterday the afternoon, the prime minister’s home secretary Suella Braverman resigned late afternoon.

She explained in her resignation letter that she had accidentally sent sensitive information from her personal email, forcing her to quit.

However, she took a parting swipe at Truss. That set the scene for a chaotic evening vote on fracking in which Tory MPs were allegedly manhandled into the chamber by senior Conservatives to cast their support for the government.

A Number 10 spokesperson told journalists in the early hours of this morning the vote was in fact a confidence vote in Truss’s premiership, despite Tory officials telling MPs it was not.

Truss quit around 1.30pm today, prompting the pound to strengthened 0.5 per cent against the US dollar.

Yield on 10-year gilt

Markets have cooled since last month’s botched £45bn tax cutting mini-budget sparked a huge bond sell off and a collapse in the pound.

Yields on the 30-year gilt hit their highest level in over 20 years after the mini-budget on 23 September, but have since curbed. 

UK borrowing costs have fallen back below their international counterparts. The 10 year gilt yield has fallen below its US, Italian and Greek equivalents.

International bond yields have surged higher this driven by central banks hiking interest rates steeply to tame a historic inflation surge.

The US Federal Reserve has lifted borrowing costs by 75 basis points three times in a row and is expected to do so again next month. The European Central Bank lifted rates by the same amount at its last meeting.

Yields across the US treasury curve rose today. 

The Bank of England is expected by markets to launch a 100 basis point rise on 3 November, the biggest move in its 25 years of independence.

Ben Broadbent, one of the Bank’s top officials, today said the monetary policy committee will respond “promptly” to the government’s fiscal package on 31 October.

Chancellor Jeremy Hunt is scrambling to plug a £40bn hole in public finances before the fiscal statement later this month.