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UK government bonds and pound rally ahead of Chancellor’s emergency budget plans

There had been worries the sell-off in gilt markets would resume in earnest after the Bank of England ended its government bond-buying plan.

17 October 2022

The battered pound and UK government bonds rallied on Monday ahead of new Chancellor Jeremy Hunt’s emergency statement to calm the chaos in the financial markets.

Yields on 30-year and 10-year government bonds – also known as gilts – tumbled by around 8% in early trading as the Chancellor’s announcement that he will bring forward a fiscal statement soothed volatile markets.

Sterling leapt more than 1% to 1.131 US dollars at one stage after the news, which was unveiled before markets opened and ahead of what many feared would be a testing day for the pound and gilts.

There had been worries that the sell-off in gilt markets would resume in earnest on Monday after the Bank of England ended its government bond-buying scheme and after Friday’s corporation tax U-turn failed to ease investor concerns.

The Bank stuck to its guns by ending its emergency gilt-buying programme on Friday despite fears it would see a return to volatile market conditions which sparked a damaging sell-off in gilts that left some pension funds on the verge of collapse.

In a statement also out before market opening on Monday, the central bank said its bond-buying programme had “enabled a significant increase in the resilience of the sector” after the mini-budget market chaos had left some pension funds on the brink of collapse.

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