U.K. Bonds FALL as Reeves’ Budget Points to MORE DEBT and STIMULUS! America NEXT?

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(Bloomberg) -- UK bonds fell as investors were unnerved by the government’s plans to fund investment and stimulate the economy, which could mean interest rates stay higher for longer.

The yield on two-year bonds jumped as much as 13 basis points after the Debt Management Office announced £297 billion ($386 billion) of government bond sales in the fiscal year. While that was only slightly higher than expectations, investors pointed to official projections that imply around an extra £142 billion of borrowing over the next five years.

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Traders adjusted for this looser fiscal policy by scaling back bets on monetary easing by the Bank of England. The market is now pricing just one more interest-rate reduction for the rest of the year, compared with two before Chancellor of the Exchequer Rachel Reeves’s announced her budget.

“Today’s budget was in fact a big fiscal loosening,” said Shaan Raithatha, a senior economist at Vanguard Europe. “We expect inflation and the BOE interest rate to fall more slowly as a result of today’s announcement, as stronger growth in the short run exerts upwards pressure on core inflation.”

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