![[European market conditions]British bonds fall, fiscal expansion policy is a factor – stocks fall sharply for the first time in a month – Bloomberg](https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iQvyBDTjeZO8/v0/1200x800.jpg "[European market conditions]British bonds fall, fiscal expansion policy is a factor – stocks fall sharply for the first time in a month – Bloomberg")
In the European bond market on the 30th, British bonds fell. Investors were spooked by government plans to raise money for investment and economic stimulus. The plan could keep Bank of England interest rates high for a long time.
Two-year UK bond yields briefly fell to 13 basis points (bp, 1bp = 0.01) after the UK Debt Management Office (DMO) announced that government debt issuance for 2024-25 would be 297 billion pounds (approximately 59 trillion yen). %)rise. The amount was only slightly higher than market expectations, but it highlighted the government’s outlook, which suggests it will borrow around £142bn over the next five years.
Due to this fiscal expansion policy, the outlook for the Bank of England’s monetary easing, which is reflected in the short-term money market, is set back. Only one rate cut of 0.25 percentage points is expected this year, down from two before Treasury Secretary Reeves announced her Budget.
UK To Boost Gilt Sales By £19 Billion This Fiscal Year
DMO will sell £297 billion of gilts, broadly matching the survey estimate
“The budget is actually a massive fiscal expansion,” said Shaan Leisasa, senior economist at Vanguard Europe. “As a result of today’s announcement, inflation and the BoE interest rate will likely fall more slowly, with short-term growth acceleration putting upward pressure on core inflation.”
On that day, the yield on 10-year bonds briefly exceeded 4.4%, the highest level in about a year. The daily fluctuation exceeded 20 basis points for the first time since March last year, making the market volatile. Traders’ exits and re-enters amplified the movement.
German and Italian bonds also swung sharply. Germany’s inflation rate and gross domestic product (GDP) exceeded expectations, and European Central Bank (ECB) Director Schnabel warned against rushing into further interest rate hikes.
In Italy, the decline after medium-term bonds was larger than in other euro area countries. The GDP growth in the third quarter (July-September) unexpectedly remained at zero, reaffirming the weakness of the economy.
Money markets expect the ECB to cut interest rates by 30 basis points in December, down from 35 basis points the day before. The total rate cut is expected to be 125 basis points by the end of next year, down from 140 basis points the day before.
As for European stocks, the STOXX Europe 600 Index fell 1.3%, the steepest decline since September 20th. All industry stock indexes fell as corporate results were disappointing.
Britain’s FTSE 250 index rose 0.3%. Treasurer Reeves unveiled plans for a £40bn tax increase in his financial report. It will increase spending on public services and use the money to plug the deficit left by the previous Conservative government.
European market overview on October 30th (table as of 6pm in London)
| KK | closing price | Compared to previous business day | rate of change |
|---|---|---|---|
| bond | Latest yield | Compared to previous business day |
|---|---|---|
news-rsf-original-reference paywall">Original title:UK Bonds Fall as Reeves’ Budget Points to More Debt And Stimulus(excerpt)
Bund, Gilt Curves Flatten, Rate-Cut Bets Pared: End-of-Day Curve（抜粋）
European Stocks Drop on Earnings; UK Mid-Caps Gain After Budget
(excerpt)
