Government breathes sigh of relief as gilt yields drop

The sigh of relief in Downing Street this morning would likely have been audible halfway down Horse Guards Parade as investors reacted positively to new Chancellor Jeremy Hunt’s rescue mission

Gilt yields have fallen sharply, the pound is higher and unless Hunt stuffs up his early trailer of new fiscal measures, it seems the government has bought itself some breathing room with the financial markets. This is particularly reassuring given the Bank of England has, officially at least, concluded its intervention in the gilt market.

AJ Bell investment director Russ Mould said: “Longer term there are big questions about the impact of what looks like being hefty real-terms cuts to public services. However, in the short-term, Hunt, like a professional problem solver brought in to steady an ailing business, seems to have done what was required. Even if it meant tearing up much of the mini-Budget and starting again.

“The FTSE 100 is steady, no mean feat given it is not helped by the relative strength in the pound, and housebuilders are higher amid hopes the mortgage markets might start to stabilise.

“Overnight focus is likely to fall on Chinese GDP figures, to see how the world’s second largest economy is coping after its latest Covid hits and whether measures to support growth are actually having any impact. An unexpected delay to trade figures due out on Friday won’t have done anything to calm any jitters.”