UK Bonds, Pound Surge as Traders Bet on More Fiscal Plan U-Turns

As investors bet that the government would continue to veer from the expanded fiscal approach that threw markets into chaos, UK government bonds climbed and the pound increased.

As of 09:46 a.m. in London, the yield on 10-year gilts was down as much as 32 basis points to 4.02%, while the pound was trading 0.7% higher at $1.1253. 

Prime Minister Liz Truss has already been compelled by the unfavourable market response to the original mini-budget proposals to retract a number of tax-cut promises and replace her first chancellor, Kwasi Kwarteng. 

However, now that the Bank of England's emergency bond-buying operations, which served as a market backstop, have ended, the government is under even more pressure to restore investor confidence in public finances.

Hunt's speech is a "make-or-break" moment for the pound, according to ING analyst Francesco Pesole.

It also falls "on the first day of gilt trading without the backing of the Bank of England's temporary bond-buying scheme, which increases pressure on Hunt to present a credible strategy to repair the UK's problematic fiscal position."

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Declining Stock and Solid Fundamentals