Bond markets may force Rachel Reeves to deliver a second budget if investors react negatively to next week’s fiscal plans, a senior City investor has warned, underscoring the fragile backdrop the chancellor faces ahead of 26 November.
David Zahn, head of European fixed income at the $1.69 trillion asset manager Franklin Templeton, said the biggest risk to Reeves was that markets “disappoint” rather than celebrate the Budget — a scenario that could push up gilt yields sharply.
“If the bond market reacts very badly, the government will have to react if bond yields start to go up too much,” Zahn said. “It could force her hand to do a secondary budget.” He added that yields on 10-year or 30-year UK government bonds reaching 6% would be “unsustainable”, warning of a potential “death spiral” if borrowing costs rose too far.
UK 30-year gilt yields currently stand at 5.35%, down from a 27-year high of almost 5.75% in early September. Ten-year yields are trading at 4.53%.
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