Britain sold £4.5bn of five-year debt at the highest average yield since 2008, one day before the Budget. An ActivTrades analyst says the Chancellor has little room for error, and investors expect a low-key statement.
The Debt Management Office sold £4.5bn of 5-year debt at an average yield of 5.036%, the highest since 2008, Reuters reported. The sale succeeded, but at the highest price since the financial crisis almost two decades ago.
There was plenty of interest in the gilts. Investors bid for 3.51 times as much debt as was available, which let the DMO pick the best offers.
ActivTrades sees little room for error
Ion Jauregui, an analyst at ActivTrades, said the sale underlines how little room for error the Chancellor has. He pointed to 10-year gilts yielding 5.35%, sticky inflation and a Bank of England that remains concerned about it.
Morgan Stanley analysts describe the City as expecting a low-key, low-volatility Budget. Investors expect the UK's fiscal headroom to fall to around £15bn to £20bn, down from £23.6bn in March.
Borrowing plans could move yields
Berenberg said investors expect Wednesday's Budget to keep the government's fiscal consolidation plans on course. According to Berenberg, there is "a risk of a jump in yields" if Chancellor Healey announces more borrowing than investors expect on 28 October.
Smaller businesses are finding life tougher. The number of UK businesses in significant financial distress hit a record 738,144, according to BTG's Red Flag Alert research.
Zoopla reported that 35% of UK homes sit in postcode areas where house prices are falling, up from 12% a year ago.
Source: The Guardian
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