LONDON: Long-dated British government bonds rallied on Monday ahead of a statement from new finance minister Jeremy Hunt who is expected to reverse swathes of Prime Minister Liz Truss's economic growth plan which triggered a market rout.
Yields on 20- and 30-year gilts slid by around 34 basis points in early trade, reversing most of their sharp rises seen on Friday when a statement by Truss failed to reassure investors about the government's fiscal plans.
Hunt will announce tax and spending measures on Monday, two weeks earlier than scheduled, to stem a collapse in investor confidence that began when Truss's government unveiled a push for economic growth based on unfunded tax cuts last month.
While in historic terms a 29 basis-point fall in yields would represent a huge rally for gilts, on Monday it only put them back to a levels seen last week - a reflection of the enormous market volatility recently.
Gilts remain well above their seen before former finance minister Kwasi Kwarteng announced Truss's growth agenda on Sept. 23 - a measure of the deficit in investor confidence that Hunt must now address.
The 20-year gilt yield was about 71 basis points higher on Monday than its closing level on Sept. 22, the day before the announcement of the "Growth Plan," leaving it about closer to its recent peak than its pre-plan level.
"It would take an almighty fiscal tightening package to convince the market that a) the fiscal path is now sustainable and b) that Bank of England hiking risk is reduced," said Antoine Bouvet, rates strategist at ING.
Rate futures priced in a roughly 80% chance that the BoE will raise interest rates by 100 bps to 3.25% on Nov. 3, having priced in a smaller increase to 3.0% at the end of last week.
BoE Governor Andrew Bailey said on Saturday: "As things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August." - Reuters
