Has the UK Budget Triggered a Market Reaction?

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00:00Laurie, there has been a lot of talk about bonds ahead of this budget.

00:05Have we seen any market reaction after Rachel Reeves delivered her speech?

00:10The reaction doesn't actually look that bad.

00:14You remember, I always think of Liz Truss's mini budget,

00:17and maybe that shouldn't be a marker in the sand, but this seems relatively calm.

00:22Well, I do think that that Liz Truss incident is something that Rachel Reeves,

00:26even though Liz Truss was from a different party,

00:27something that Rachel Reeves will have in the back of their mind.

00:31Liz Truss announcing tax cuts that were unfunded.

00:36She lasted in office seven weeks because of that,

00:38because her announcement caused a bond market run.

00:41Everybody will remember that.

00:43It's become a joke in the U.S. as well.

00:45People worldwide speak of Liz Truss moments,

00:47and Rachel Reeves will have been well aware of that when she was preparing her budget.

00:53Guilt yields moved really erratically today.

00:56After that leak that you mentioned from the OBR, the Office for Budget Responsibility,

01:02bond yields really rose a lot.

01:04It was interesting, about six to seven basis points across the curve,

01:08across the range of maturities.

01:10That's a pretty big move.

01:12But we've ended today quite a bit lower, particularly at the long end.

01:1630-year guilts are, which is the longest way that a government will borrow.

01:20They're down eight basis points on the day.

01:22It surprises me a little bit.

01:24That may be because the Debt Management Office has come out and said,

01:28look, we have to raise more money through guilts,

01:31but we're going to concentrate that in shorter yields rather than longer yields.

01:36So that may be why the 30-year guilts has done so well.

01:39But in general, guilts, guilt yields are down.

01:43But let me give you a caveat here.

01:45Going back to that Liz Truss moment, we had a bit, after she delivered that budget,

01:50we had a bit of a run-up in bond yields.

01:51But the real damage was a couple of days later after her chancellor went on television and said,

01:57hey, hey, we're just getting started on these tax cuts.

02:00That's when the run on guilt really happened.

02:02And this happened last year to Rachel Reeves when she delivered her budget last year,

02:06which raised taxes even more.

02:08We had a pretty benign guilt market reaction on the day.

02:12But the following day, we saw a real sell-off in guilts, which pushes the yields higher.

02:17So I'd say what happens today is not necessarily indicative of a medium-term trend.