Government borrowing costs ease back as gilts and pound stage post-Budget rally

Hal Cook, senior investment analyst at Hargreaves Lansdown, said: “All bond investor eyes in the UK are on gilt yields for Budget day.

“Yields spiked a little initially, but the market has been sanguine since in the build up to Reeves’ speech.

“The leak of the OBR forecasts caused some volatility, falling then rising before falling again as the speech began.

“The 10-year is under 4.45 per cent at the time of writing (they closed at 4.5 per cent yesterday), putting it near the bottom of its range so far in 2025. Moves of 0.05 per cent are relatively common.

“Over 2025, there have been two trends in gilt yields.

“Short-dated yields of up to 5 years have generally fallen while medium and long-dated yields (10-year and longer) have been broadly range bound (while very long-dated yields had been on an increasing trend until September, moves since then have brought them back down below where they started the year).

“During October, in the build up to the Budget, yields fell across the board.

“This reflected expectations that the Budget was going to contain notable tax increases and bring greater confidence in the government’s ability to balance the books in future.

“These falls were scuppered earlier in November when it was leaked that expected income tax rises had been scrapped, leaving investors scratching their heads as to how the government was going to increase revenues.

“Coming into today, gilt investors were hoping for measures that allowed them to have greater confidence in fiscal responsibility going forward, which would have allowed yields to fall (and prices rise).

“So far, the government hasn’t provided much by way of surprises for bond investors, evidenced by the relatively small moves in yields so far.

“As ever though, the devil will be in the detail so things could over the coming hours and days.”