Latest news with #BondMarkets
Daily Mail
08-07-2025
- Business
- Daily Mail
Labour's retreat on welfare reforms leaves Britain vulnerable to bond traders, warns ALEX BRUMMER
Never has Mark Carney's 2017 assertion that Britain is dependent on the 'kindness of strangers' felt so real. The former Bank of England governor, now Canadian Prime Minister, made his remarks in the context of Brexit. It is not divorce from the European Union, however, but the failure of successive governments to get to grips with the size of the state which has so empowered the bond markets. Pledges to reduce levels of UK government debt as a percentage of output have featured in eight of the last ten fiscal plans unveiled by Chancellors of the Exchequer, says the Office for Budget Responsibility (OBR) in its latest fiscal risks report. Yet despite the declared targets, underlying debt has jumped by 24 per cent of national output over the past 15 years and by 60 per cent over two decades. The consequence is that the yield on government long-term bonds, gilt-edged stock, is higher now in Britain than at any time since the start of the 21st Century. A failure to get a grip, symbolised by retreat on welfare reforms, increasingly leaves Britain vulnerable to bond traders. That was seen most clearly during Liz Truss's brief period as Prime Minister in 2022. It has also reared its head when Labour took the helm a year ago despite an eye-popping £40billion tax raising budget last October. It notoriously failed to steady the ship. Bond yields spiked last week when it was feared that Chancellor Rachel Reeves might leave the Government after the retreat from welfare cuts. Amid the chaos, the hope is that despite tears in the Commons, the Chancellor would stick with her 'iron clad' fiscal commitments. Investment bank Goldman Sachs notes that 'the UK bond market sell-off largely stems from concerns about fiscal discipline'. Reneging on the welfare reform cuts is serious enough. But the 'UK now faces a structural deficit worsened by growth and employment forecasts'. The Labour narrative is that the problem can be fixed by tax rises in the Autumn with wealth in the line of sight. The OBR fiscal report suggests that this would only be a palliative unless fundamental changes to pensions and welfare can be delivered. Britain lacks the US anchor of a 'reserve' currency and Silicon Valley propelled growth to see off the pressure from the bond vigilantes. Vulnerability to the type of foreign speculator that Harold Wilson famously described as 'gnomes of Zurich' is profound. The switch in the UK from defined benefit (gold-plated) pension schemes to defined contribution pension plans, more likely to invest in equities than bonds, mean cornerstone buying of gilts will trend down. The OBR estimates that pension fund holdings of gilts will plunge from 29.5 per cent of gross domestic product in 2024-25 to 10.9 per cent by the 2070s. Foreigners, the Carney 'strangers', presently hold around 30 per cent of the debt stock. Overseas holders cannot but be aware that the UK has the third highest borrowing costs of any advanced economy but for tiny Iceland and New Zealand. Ideally, Britain would grow its way out of debt. It has the research universities, tech, science, creativity and financial innovation to do so with the right tax breaks for digital and cyber investment. It cannot do so while the albatross of rocketing pension, welfare and NHS spending hovers. The 'triple lock', costing the Exchequer three times more than projected at £15.5billion, needs to be revised. The unfunded public sector pension fund liability is ballooning along with public sector pay. An unreformed welfare system will need to be tackled. The number of working-age people classed as inactive since the pandemic has climbed to 780,000, above pre-Covid levels. It is driven by 660,000 citing long-term sickness as a cause of not working. The OBR estimates the extra welfare cost at £6.8billion a year and forgone tax revenues at £8.9billion. It is more attractive to go on the sick than claim unemployment benefit which is meaner and requires recipients to look for a job. Such changes dare not speak their name on the Left. If they don't happen, it will be mercurial gilt markets, rather than our elected politicians, that will have the biggest say.
Irish Times
03-07-2025
- Business
- Irish Times
Strong US jobs data sends global stock markets higher
Strong US jobs data sent the dollar and Wall Street higher on Thursday, while in Europe, Britain's bond markets recovered from a renewed burst of debt worries. Dublin Euronext Dublin was flat on what was described by traders as a muted day in advance of a US holiday on Friday. The house building sector bounced back from some weakness on Wednesday, with Cairn Homes and Glenveagh Properties each up 2 per cent. Cavan-based insulation specialist Kingspan, meanwhile, finished down 2 per cent. Among the financial names, it was a better day for AIB and Bank of Ireland, which were each up 1.5 per cent. READ MORE Ryanair , another heavyweight on the index, was down 0.5 per cent at close of business, after cancelling more than 400 flights following a two-day strike by air traffic controllers in France. London London's main stock indexes closed higher as political tensions appeared to ease after Chancellor Rachel Reeves said she's 'totally' up for the job, drawing support from prime minister Keir Starmer. The blue-chip FTSE 100 was up 0.6 per cent, while the midcap index gained 1.2 per cent. Main FTSE stock indexes had declined on Wednesday in a marketwide sell-off after Reeves appeared tearful in parliament following a series of U-turns on welfare reforms that blew a hole in her budget plans. Retail stocks topped the sectoral chart with a 2.2 per cent gain after electricals retailer Currys beat profit estimates on strong demand for mobile and computing products. Currys shares jumped 7.1 per cent, while peer AO World was up 1 per cent. However, Watches of Switzerland fell 8 per cent and was among the top midcap decliners after the luxury retailer warned of a margin hit due to tariff pressures. Pharmaceutical stocks were the sectoral losers, declining 1.3 per cent. AstraZeneca fell 1.8 per cent and GSK lost 1.1 per cent. Europe The pan-European Stoxx 600 index climbed 0.4 per cent and kept MSCI's main 47-country world shares gauge on course for its seventh record high in the last eight sessions. Meanwhile, the Cac 40 in Paris closed up 0.1 per cent, while the Dax 40 in Frankfurt firmed 0.4 per cent. Euro zone government bond yields ended the day lower with the focus on events outside the currency bloc, after US jobs data blew past expectations, and the British gilt market after the previous day's sharp sell-off there. Germany's 10-year bond yield closed down 4 basis points at 2.578 per cent, having touched an earlier low of 2.571 per cent. New York The S&P 500 and the Nasdaq touched fresh record highs after a stronger-than-expected US jobs report pointed to labour market resilience, while Nvidia looked set to become the most valuable company in history. Nvidia rose as much as 2.4 per cent, putting it on track to become the world's most valuable company in history, with the chipmaker's market capitalisation nearing $4 trillion. Its shares were last up 1.6 per cent, trading at all-time highs. The S&P 500 and the Nasdaq extended their record-winning session as signs of a resilient economy and easing trade tensions following a series of agreements between the United States and other countries continue to propel stocks higher. The blue-chip Dow was just 0.8 per cent shy of all-time highs touched in December. All three main indexes were on track to end the holiday-truncated week on a positive note. Shares of chip design software firms Synopsys and Cadence Design Systems climbed 5.1 per cent and 4.6 per cent, respectively, in premarket trading after the US lifted export restrictions on chip design software to China. Tripadvisor climbed 16.3 per cent after the Wall Street Journal reported activist investor Starboard Value had built a more than 9 per cent stake in the online travel company. Datadog jumped 13.5 per cent after the cloud security firm was set to replace Juniper Networks on the S&P 500. – Additional reporting: Agencies
Wall Street Journal
07-05-2025
- Business
- Wall Street Journal
Treasury Yields Rise Amid Hopes of Trade War De-Escalation
0841 ET – Bond markets look upbeat ahead of the Fed's decision later today, and word that U.S. and Chinese officials will meet for trade talks. The Fed is expected to keep rates on hold. Investors will tune in for Chair Powell's post-meeting remarks, as he is likely to be asked about how tariffs are affecting inflation and economic growth. Risk-taking returns after two-day retreat, with Treasury yields rising. The 10-year is at 4.320% and the two-year at 3.814%.( @ptrevisani) Longer-Dated U.S. Treasurys Look Worth Buying Again, Says Morgan Stanley IM 0902 GMT – Longer-dated Treasurys are worth buying after their falls last month which took yields sharply higher, says Morgan Stanley Investment Management's Jim Caron in a note. The rise in yields was 'mainly technical in nature.' It came as investors scrambled to cover positions and unwound basis trades—a leveraged way to hold Treasurys—following a sudden fall in equities after the announcement of widespread U.S. tariffs. Treasurys are still a safe-haven investment, Caron says. 'If the U.S. economy is slowing due to tariffs, and recession risks are rising, we then believe longer duration U.S. Treasurys have both outright and hedging value to investors.' (
