Investment Week

Autumn Statement 2016: Gilt yields soar as Hammond spending plans boost issuance

Yields on benchmark 10-year UK government bonds jump following announcement

Bonds and gilts news
  • LinkedIn  
  • Share on Whatsapp 
0 Comments

Yields on benchmark 10-year UK government bonds have jumped this afternoon, as borrowing is set to increase under Chancellor Philip Hammond's spending plans to boost the economy, unveiled in his first Autumn Statement.

Hammond revealed plans for a number of spending projects, in areas such as transport and infrastructure. He pledged a £1.1bn project for transport in England and said the government had "chosen to borrow to kickstart infrastructure and investment".

To fund the plans, the Chancellor said the government's debt-to-GDP ratio will peak at 90% in 2017-18, while borrowing will hit £59bn in 2017-18, on the back of a smaller economy and weaker tax revenues.

Hammond said: "The Office of Budget Responsibility forecasts that debt will rise from 84.2% of GDP last year to 87.3% this year, peaking at 90.2% in 2017-18 as the Bank of England's monetary policy interventions approach their full effect.

"In 2018-19, debt is projected to fall to 89.7% of national income - the first fall in the national debt as a share of GDP since 2001-02. And it is forecast to continue falling thereafter."

In response, 10-year gilt yields rose the most since December after the Debt Management Office said an extra £15bn pounds of issuance will be completed in the 2016-17 fiscal year. This is significantly above the £4.25bn increase predicted in a Bloomberg survey of economists.

"A lot more gilts are coming this year than had been expected," Jason Simpson, a fixed income strategist at Societe Generale SA told Bloomberg. "It is going to be a challenging environment for the gilt market over the next few years."

Ten-year gilt yields climbed by 0.12 percentage points to 1.48% as at 2.45pm. Meanwhile, 5-year gilt yields have climbed 0.5 percentage points to 0.67%, and 30-year gilt yields are up by 0.10 percentage points to 2.12%.

Sterling is down 0.2% against the US dollar at $1.2403, but trading 0.5% higher against the euro at €1.1749.

Meanwhile, the FTSE 100 is down 0.5% after a brief rise in early trading and the FTSE 250 is trading 0.3% lower in afternoon trading. Estate agents fell this afternoon after the Chancellor's swipe at letting agent fees, with Foxtons and Countrywide down 15% and 5%, respectively.

However, plans for new funding in digital infrastructure saw internet service providers rise, with CityFibre and BT Openreach shares both higher following the Statement.

Shares in private equity group 3i, which has recently been concentrating on infrastructure investments, were also up by 1.4% after slipping this morning.

  • LinkedIn  
  • Share on Whatsapp 

About the author

Jayna is senior reporter and investment trust correspondent at Investment Week. She joined the publication in August 2015 after graduating with an MA in Multimedia Journalism from the University of Kent.

Jayna holds the NCTJ diploma and has experience in print, online and broadcast journalism. She is responsible for the Investment Week monthly podcast.

Read more on Jayna

More news