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UK government borrowing costs rose barely on Friday but remained below Thursday’s peak as investors await a key US jobs report later in the day.
The yield on the 10-year Treasury rose 0.04 percentage point to 4.85 percent, but was still below the 4.93 percent reached on Thursday, the highest level since 2008. Yields change inversely to prices.
The pound sterling, which fell 0.5 percent on Thursday, lost ground against the dollar, falling 0.1 percent to $1.229.
Gilts have suffered in recent sessions as government bond yields rise globally amid persistent inflation in some large economies.
Friday’s jobs data can be “important to maintain market calm” provided that U.S. Treasuries are the principal driver of gilt performance, said Gordon Shannon, portfolio manager at TwentyFour Asset Management.
Longer term, the bond market “needs Reeves to signal some understanding of the tougher global situation by cutting spending while we wait for sterling to fall to make gold attractive enough to international buyers,” he added.
Britain has been hit particularly hard by the worldwide bond selloff as investors worry concerning the government’s large borrowing needs and the growing threat of stagflation, which mixes anemic growth with persistent price pressures.
The credibility of the government’s economic plans is vulnerable to tensions in the bond market after Chancellor Rachel Reeves left herself with just £9.9 billion in reserves despite modified fiscal rules in last yr’s autumn budget.
Pooja Kumra, UK pricing strategist at TD Securities, said how Reeves addressed the shortage of fiscal headroom could be key.
“Investors are wondering what the chancellor’s next option will be. . . spending cuts, more borrowing or taxes,” she said.
According to economists, the ticket sale effectively eliminated Reeves’ room for maneuver in the budget. The level of bond yields is a vital determinant of fiscal reserves, given its implications for the government’s interest bill, which exceeds £100 billion a yr.
Labor has sought to reassure investors this week, with Darren Jones, the UK Treasury’s number two, telling MPs on Thursday that the federal government is committed to “economic stability and sound public finances.”
