UK government bond markets have come under renewed pressure this week, with long-dated Gilt yields spiking as investors grow uneasy over the country’s fiscal outlook.
Concerns about rising borrowing costs, stubbornly high debt levels, and uncertainty around future budget policy have driven a sharp repricing across the curve. We’re sure we’ve all seen the ‘highest since 1998’ headline being thrown around when it comes to the 30-year yield.
Yet this isn’t exactly fearmongering, as the move highlights how fragile confidence remains in the UK’s public finances, with markets quick to demand a higher risk premium when fiscal credibility is questioned.
Today, we run through the implications for FX and rates for different scenarios as to how this might play out through to the end of the year.