After a period of volatility in the middle of the day bond markets rallied alongside modest gains for sterling.
Yields on 10-year government bonds, a source of concern for the government ahead of the budget, have seen a modest rally after a chaotic period in the middle of the day.
Market open saw bond yields sit at around 4.53 per cent throughout the morning.
However, after the OBR accidentally published the budget early at 11:40am, bond markets saw a period of chaos with yields fluctuating between 4.44 per cent and 4.55 per cent within a 20-minute window.
Michael Brown, an analyst at Pepperstone, told City News: “In a decade of doing this, I have never seen that ever.”
He added: “The volatility [in the middle of the day] makes a lot of sense … because you’ve got everyone getting a lot of information at a different time. And it’s a challenge for the market to digest.”
Bond markets stabilised once the content of the OBR report reassured investors that the Chancellor’s plans would build enough ‘fiscal headroom’ and Chancellor Rachel Reeves announced raft of new taxes in the House of Commons.
Brown said: “There really wasn’t anything in there that surprising … the entirety of what she announced was priced in.”
10-year bonds saw a modest rally throughout the afternoon, with yields settling at 4.42% at market close.
The events follow weeks of public speculation about how Reeves would meet the government’s self-imposed fiscal rules. Failure to do so could have led to a sell-off of government bonds and a hike in the cost of servicing government debt, which currently sits at 8.4 per cent of annual spending.
Reeves met her fiscal rules via a ‘smorgasbord’ of measures, including a freezing of income tax thresholds and a tax on dividends.
The day also saw modest gains for sterling against both the dollar and the euro.
Despite also seeing significant fluctuations in the middle of the day after the OBR leak, the foreign exchange market rallied during the afternoon and the pound saw gains against both the dollar and the euro.
Alt text: a table shows modest gains for the pound against the dollar and the euro.
