: U.K. bond yields continue to drop as Kwarteng flies back early from IMF meeting

by | Oct 14, 2022 | Stock Market

U.K. bond yields continued to drop on Friday, as Chancellor of the Exchequer Kwasi Kwarteng flew back early from the International Monetary Fund meeting amid expectations the U.K. government will further backtrack on its tax cut plans. The yield on the 30 year gilt
TMBMKGB-30Y,
4.242%
— which was high as 5.1% as recently as Wednesday — fell 12 basis points to 4.42%.

The yield on the 10-year gilt
TMBMKGB-10Y,
3.889%
dropped 16 basis points to 4.02%. Yields move in the opposite direction to prices. The pound
GBPUSD,
-0.66%
fetched $1.1266, down from $1.1331 on Thursday. Kwarteng in recent interviews has done nothing to douse speculation the U.K. government will further pare its tax-cut plans. In one interview, he replied to a question about further U-turns by saying he was comitted to pushing through the government’s growth agenda. In another, he replied, “we’ll see.” Speculation of further U-turns has centered around corporate tax cuts in particular. The government has already relented on a planned cut for those making above £150,000. Financial markets gyrated after Kwarteng announced its mini-budget, which called for some £45 billion in tax cuts on top of capping energy prices. Investec Securities estimates the total cost of the stimulus to be on the order of £150 billion. A medium-term fiscal plan, as well as an independent forecast from the Office of Budget Responsibliitiy, is due at the end of October. The Bank of England’s emergency bond-buying plan — designed to ease tensions for pension funds — is due to expire on Friday. The central bank says it’s purchased £17.8 billion in securities.

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