By Jeffrey Smith
Investing.com – British government bond prices opened sharply higher on Monday in anticipation of a sweeping turnaround by the British government over its ill-fated plans to cut taxes.
The yields of some British bonds, which move inversely with prices, fell by more than 20 basis points on the back of expectations that the new Treasurer, Jeremy Hunt, would effectively abandon all measures announced by his predecessor Kwase just two weeks ago. Quarting.
Meanwhile, the pair pared overnight gains to trade 0.8% higher at $1.1263. Against that, it rose 0.6% to 1.1555.
Hunt is scheduled to make a statement at 06:00 ET (10:00 GMT), according to a statement from the Treasury Department early Monday. This will be followed by another statement to the House of Commons.
The government hopes to end the turmoil caused by Quarting’s disastrous “mini-budget” in September, which proposed the biggest tax cuts in 50 years at a time when Britain’s economy is already reeling. Karting’s measures pushed the pound to an all-time low against the dollar and sparked a rout in government bonds, forcing the Bank of England to step in to stop the collapse of much of the UK’s pension system.
Truss fired Kwarteng on Friday because she tried to salvage the two-month-old premier’s job by bringing back a planned increase in corporate income tax that Kwarteng had scrapped. However, Gilt’s market continued to sell, after Truss sided with most of Kwarteng’s other actions.
Over the weekend, several British media reported that the Office of Budget Responsibility had warned the Treasury that Kwarteng’s initial plans would have created a funding gap of more than £70 billion by 2027.
The Bank of England ended its direct bond market support on Friday, having bought just under £20 billion of conventional and index-linked bonds over the past two weeks to avoid what it called a “material risk to UK financial stability”. A maximum amount of 65 billion pounds has been allocated.
By 03:30 ET, the yield on the benchmark Gilt was down 20 basis points at 4.13%, while Gilt, which directly reflects expectations for Bank of England policy, was down a similar amount at 3.67%. The Gilt bond yield, the clearest reflection of long-term confidence in the pound and the British economy, fell 25 basis points to 4.53%.