The Budget is having a marginal negative impact on the gilt market, already indicated by fall in the...
The Budget is having a marginal negative impact on the gilt market, already indicated by fall in the bond prices of 10-year bonds the day after the Budget.
The expenditure outlined in the Budget and the Government's slightly looser monetary policy will raise yields in the gilt market but only at the margins, according to Paul Read, bond fund manager at Invesco Perpetual.
He said: 'At the margin we may see some creeping issuance but I do not think Gordon Brown wants to issue too much.'Further issuance may depend on the yield curve at the time in order to assess the potential costs of borrowing, said Read. The reaction from the bond market to the Budget last week was muted, he noted, with yields moving only slightly.
According figures from Bloomberg, the price of 10-year bonds fell by some 0.25%, while the yields went up by about three basis points. Two-year bonds saw yields slip around one basis point or 0.01%.
Andrew Hornig, chief strategist at F&C management, said: 'UK gilts may not draw great confidence from the arithmetic and supply, notably at the short/intermediate end, is set to rise. At least the Government is raising revenue but a slowdown in growth would be adverse, threatening the Government's needed revenues.'
Andrew Milligan, head of global strategy at Standard Life Investments, said: 'The bond market was not surprised by the Budget statement an gilt issuance forecasts. It will pay attention to what the Chancellor did not say, for example the absence of any major statements on EMU, pensions and FRS17.'
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