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Gilt yields fall as govt borrowing less than expected

Gilt yields fall as govt borrowing less than expected

UK gilt yields have dropped after the government announced it would borrow less than expected in this year’s Autumn Budget.

The yield on UK 10-year gilts, which stood at 1.09 per cent this morning, fell to a low of 0.97 per cent following the publication of Budget documents this afternoon.

Figures from the Debt Management Office published alongside the Budget today (October 27), show that planned gilt sales in 2021-22 will fall by £57.8bn to £194.8bn when compared with April’s projection.

The figures confounded analysts, reports FTAdviser’s sister title the Financial Times, who were predicting a cut of £34bn.

“This means a lot less supply than the market was anticipating,” Peter Schaffrik, a strategist at RBC Capital Markets, told the paper.

The cost of borrowing seen today reflects a low not seen since September 30.

Gilt yields have spiked considerably in the UK since the summer, benchmark borrowing costs rising from 0.539 per cent in August to 1.2 per cent last week.

The simultaneous falls in equity and government bond prices seen in September caused problems for some balanced portfolios, which have historically relied on bonds for their diversification benefits.

Equities have subsequently rallied this month, and government bond prices followed suit this week even prior to today's announcement.

sally.hickey@ft.com