LONDON, March 26 (Reuters) – British government bond yields dipped on Wednesday following Finance Minister Rachel Reeves’s spring fiscal statement, as lower-than-expected bond issuance plans cooled investor concerns about another wave of supply hitting the market.
The UK’s Debt Management Office said gilt issuance would be 299 billion pounds ($386 billion) in 2025/26 as the government continues to borrow heavily through bond markets.
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That was below the 304 billion pounds banks polled by Reuters had anticipated and was sweetened by the lowest proportion of longer-dated gilt issuance on record. The long-end of the market has been under particular pressure from increased supply.
Britain’s benchmark 10-year bond, or gilt, yield was last down 5 basis points (bps) at around 4.71%, having traded at around 4.73% before the statement.
Bond yields initially rose as Reeves said the UK’s budget watchdog had slashed its growth forecast to 1% this year from a 2% estimate in October and that borrowing would be almost 50 billion pounds higher between now and the end of the decade than expected five months ago.
Reeves said spending cuts would restore the 9.9 billion pound headroom against meeting her fiscal rule of balancing taxes and day-to-day spending by the end of the decade, which had been wiped out by lower growth and higher borrowing costs.
Gilt issuance set to be second highest on record at 304 billion pounds in 2025/26
Britain’s 2-year government bond yield , which is sensitive to Bank of England rate expectations, was last 4 bps lower at 4.262%.
Traders still priced in around 43 bps of rate cuts by the end of the year, down slightly from 40 bps on Tuesday after weaker-than-expected inflation data on Wednesday morning.
Sterling weakened slightly from before Reeves’ statement and was last down 0.5% at $1.2883 . Britain’s FTSE 100 (.FTSE)
, opens new tab stock index inched higher and was last up 0.3%, while broader European stocks (.STOXX)
, opens new tab were roughly 0.5% lower.
Reeves’ spending cuts were partly aimed at calming a jittery bond market where 10-year bond yields – which drive government borrowing costs – jumped to their highest since 2008 in January above 4.9%.
“We’re now on course to meet the fiscal rules, but that is subject to economic events over the period between now and the budget (in the autumn),” said Investec chief economist Philip Shaw.
“If things go badly with the economy and the public finances, then the Chancellor will be back to square one, perhaps with a need to tighten spending again or perhaps tax increases or even a combination of both.”
($1 = 0.7754 pounds)
Reporting by Harry Roberton and Lucy Raitano ; editing by Andrew Heavens, Ros Russell, Alun John and Dhara Ranasinghe
Our Standards: The Thomson Reuters Trust Principles.
