top of page
  • baptistedefontenay

The UK 10-year government bond rate is still above 4%

12/10/2022


Source: MarketWatch, updated on the 17th of October



At 4.08% this afternoon, the UK 10-year UK government bond rate has caught back its decline from this morning (3.991% at its lowest). The 10-year yield had declined following the announcement of the 45% tax cut being reversed. However, it now seems that the market’s focus has shifted to the other tax reduction proposals. I think the UK government is in a very difficult situation. On the one side, Prime Minister Truss was elected on a liberal economic program, focusing on tax reductions, that she must follow. On the other hand, the market is very tense, and every government revenue cut that is not compensated with decreased spending is severely sanctioned.


In addition, the economic context is not appropriate for spending cuts as the UK is already suffering from strong inflation that is predicted to be one of the worst in Europe.

It will also be interesting to follow the attitude of the Bank of England in the following days and weeks. For the past few weeks, the BoE has not used its full bond purchasing capacity, even during important UK government bonds’ sell-off such as on the 10th of October. It is also important to note that, in my opinion and considering the market tension, I do not see the UK 10-year yield decreasing in the next days and even weeks. We are walking on uncharted territories and the consequences of such yields on our economies are not fully understood, so keep your eyes open.

Comments


bottom of page