U.K. Budget May Keep Pressure on Assets Before Oct. 28

what happened

U.K. assets could come under pressure before the Oct. 28 budget as investors focus on the state of public finances. Dow Jones Newswires, citing a note from Ebury’s Enrique Diaz-Alvarez, reports that renewed attention to fiscal sustainability makes the Autumn Budget a key risk for gilts and the pound. Investors will seek assurances from Treasury chief John Healey that planned future spending will not result in unsustainable debt.

A prudent approach to government spending and revenue could instead support U.K. assets. Newsmetry API, citing a note from UBS Global Wealth Management’s Dean Turner, reports that the fiscal-risk premium embedded in U.K. government bonds could start to decline if the budget reassures investors about fiscal sustainability. “The upcoming budget is primarily about fiscal credibility; the size of the buffer matters less,” Turner said.

Ten-year gilt yields fell 1.5 basis points to 5.440%, Tradeweb data show. They reached a 19-year high of 5.527% last week, according to LSEG data, mainly because of inflation concerns and geopolitical uncertainty. The latest trade was 1.2 basis points lower at 5.443%.

why it matters

The budget may shape investors’ assessment of the U.K.’s fiscal sustainability and the risk premium on gilts, while also influencing the pound.

instruments