Bond investors bet UK's Reeves will avoid testing markets at budget
Repeats item that first ran on Tuesday
Investors wary ahead of finance minister Reeves' Oct 30 budget
Economists predict modest borrowing rise under new debt rules
Some analysts see gilts as a buying opportunity
By David Milliken and Yoruk Bahceli
LONDON, Oct 15 (Reuters) -Britain's borrowing costs have risen before the new government's first budget, which could open the door to a big rise in debt sales - but investors are not betting on finance minister Rachel Reeves pushing her fiscal options to the limit.
Reeves, who has ruled out many tax rises but wants to improve public services and increase infrastructure investment, is eyeing a change to how the government defines public debt.
That could allow her to borrow more while keeping to the letter of a pre-election promise to lower debt as a share of national income.
At first glance, investors in British government bonds appear nervous ahead of the Oct. 30 announcement of the first tax and spend programme of a Labour government in 14 years.
Benchmark 10-year gilt yields GB10YT=RR on Monday hit their highest since just before the July 4 election, while 30-year yields - considered a proxy for long-term budget risks - last week traded at their largest premium to German bonds DE30GB30=RR in two years.
"We have seen a material reduction in demand from international real money," Benjamin Nabarro, chief UK economist at U.S. bank Citi, said.
Bank of New York Mellon said its clients sold 3 billion pounds ($3.9 billion) of gilts last month, the most since former Prime Minister Liz Truss' big unfunded tax-cut plans triggered a bond market crisis in 2022.
Economists say extensive changes to the debt rule could increase the room for borrowing by 50 billion pounds or more - a hefty sum compared with the 278 billion pounds of gilt issuance planned for this year and more than can be invested efficiently.
While investors and financial analysts see no chance of a repeat of Truss' mistakes and expect a limited rise in borrowing, some worry a more relaxed budget rule could blur the line between investment and day-to-day spending, which Reeves promises she will bring into balance.
"Until you see the proof of that you probably will stay out (of gilts) for a little while and see if she's going to be true to her word," said Simon French, chief economist at investment bank Panmure Liberum.
Others think gilts now look like a buying opportunity.
"We see new interest from investors to look at the UK market," said Cosimo Marasciulo, head of fixed income absolute return at Amundi, Europe's largest asset manager, noting that short-dated gilts seemed to offer best value.
HSBC described gilts as "cheap outright and cross-market" while Barclays told clients that "pessimism over the budget is too high and valuations look cheap".
According to the median forecast in a Reuters poll this month, 10-year gilt yields will fall to 3.85% by the end of 2024. Compared with their current level of 4.17%, that represents a bigger price gain than for either Treasuries or German bonds.
The upcoming budget has been far from the only thing affecting gilt prices.
Since late August, the spread that 10-year gilt yields pay over U.S. Treasuries has barely changed, but it has widened by nearly 0.25 percentage points over German bonds amid bets that the European Central Bank will cut rates quickly to help the euro zone's lacklustre economy.
Chris Jeffery, head of macro strategy at Legal & General Investment Management, said the weakness in gilts was due to Britain's slightly stickier inflation and stronger growth, delaying rate cuts.
"For me, the driver here hasn't really been the fiscal at all," he said. "The Bank of England is being less eager to embrace interest rate cuts than everyone else."
Markets are pricing 1.2 percentage points in BoE rate cuts by the end of 2025, less than the 1.5 percentage points expected from the Fed and the ECB.
MODEST CHANGES
Much of the optimism about gilts assumes that the borrowing implications of Reeves' budget rule changes are modest.
Goldman Sachs economists have predicted annual investment spending is likely to rise by 10 billion pounds if Reeves reverts to a debt definition used before 2022 that alters how losses by the Bank of England are booked.
A bigger change to target a fall in public sector net financial liabilities could prompt Reeves to spend 20 billion pounds a year more on investment, they said.
But both those estimates were well below the extra fiscal room for manoeuvre of 16 billion or 53 billion pounds that would be created by the two different changes in the rules.
Ben Zaranko, senior economist at the Institute for Fiscal Studies, cautioned that while measures of the public finances including assets might appeal to a government seeking to invest more, their inclusion of hard-to-value assets gave a less convincing picture of government solvency to investors.
"You can't sell off a school in a financing crisis. Some people argue you should put natural assets in there too. I love bumblebees as much as the next person but you can't sell off a bumblebee," he said.
($1 = 0.7637 pounds)
UK-German 30-year bond spread widest since October 2022 https://reut.rs/3BM0CF1
Reporting by David Milliken and Yoruk Bahceli; Editing by Hugh Lawson
متعلقہ اثاثے
تازہ ترين خبريں
دستبرداری: XM Group کے ادارے ہماری آن لائن تجارت کی سہولت تک صرف عملدرآمد کی خدمت اور رسائی مہیا کرتے ہیں، کسی شخص کو ویب سائٹ پر یا اس کے ذریعے دستیاب کانٹینٹ کو دیکھنے اور/یا استعمال کرنے کی اجازت دیتا ہے، اس پر تبدیل یا توسیع کا ارادہ نہیں ہے ، اور نہ ہی یہ تبدیل ہوتا ہے یا اس پر وسعت کریں۔ اس طرح کی رسائی اور استعمال ہمیشہ مشروط ہوتا ہے: (i) شرائط و ضوابط؛ (ii) خطرہ انتباہات؛ اور (iii) مکمل دستبرداری۔ لہذا اس طرح کے مواد کو عام معلومات سے زیادہ کے طور پر فراہم کیا جاتا ہے۔ خاص طور پر، براہ کرم آگاہ رہیں کہ ہماری آن لائن تجارت کی سہولت کے مندرجات نہ تو کوئی درخواست ہے، اور نہ ہی فنانشل مارکیٹ میں کوئی لین دین داخل کرنے کی پیش کش ہے۔ کسی بھی فنانشل مارکیٹ میں تجارت میں آپ کے سرمائے کے لئے ایک خاص سطح کا خطرہ ہوتا ہے۔
ہماری آن لائن تجارتی سہولت پر شائع ہونے والے تمام مٹیریل کا مقصد صرف تعلیمی/معلوماتی مقاصد کے لئے ہے، اور اس میں شامل نہیں ہے — اور نہ ہی اسے فنانشل، سرمایہ کاری ٹیکس یا تجارتی مشورے اور سفارشات؛ یا ہماری تجارتی قیمتوں کا ریکارڈ؛ یا کسی بھی فنانشل انسٹرومنٹ میں لین دین کی پیشکش؛ یا اسکے لئے مانگ؛ یا غیر متنازعہ مالی تشہیرات پر مشتمل سمجھا جانا چاہئے۔
کوئی تھرڈ پارٹی کانٹینٹ، نیز XM کے ذریعہ تیار کردہ کانٹینٹ، جیسے: راۓ، خبریں، تحقیق، تجزیہ، قیمتیں اور دیگر معلومات یا اس ویب سائٹ پر مشتمل تھرڈ پارٹی کے سائٹس کے لنکس کو "جیسے ہے" کی بنیاد پر فراہم کیا جاتا ہے، عام مارکیٹ کی تفسیر کے طور پر، اور سرمایہ کاری کے مشورے کو تشکیل نہ دیں۔ اس حد تک کہ کسی بھی کانٹینٹ کو سرمایہ کاری کی تحقیقات کے طور پر سمجھا جاتا ہے، آپ کو نوٹ کرنا اور قبول کرنا ہوگا کہ یہ کانٹینٹ سرمایہ کاری کی تحقیق کی آزادی کو فروغ دینے کے لئے ڈیزائن کردہ قانونی تقاضوں کے مطابق نہیں ہے اور تیار نہیں کیا گیا ہے، اسی طرح، اس پر غور کیا جائے گا بطور متعلقہ قوانین اور ضوابط کے تحت مارکیٹنگ مواصلات۔ براہ کرم یقینی بنائیں کہ آپ غیر آزاد سرمایہ کاری سے متعلق ہماری اطلاع کو پڑھ اور سمجھ چکے ہیں۔ مذکورہ بالا معلومات کے بارے میں تحقیق اور رسک وارننگ ، جس تک رسائی یہاں حاصل کی جا سکتی ہے۔
