The UK gilt market has had another rollercoaster week, with the yield on 30-year debt starting at 4.40%, reaching 5.10% by Wednesday afternoon, before falling to end the week at 4.30%.
More volatility is likely next week, assuming the Bank of England’s emergency support is not extended. Whether this continues depends on the progress of restructuring within LDI pension schemes, which have been urgently raising cash for collateral stress-testing.
Political developments are also changing fast, with the announcement of the sacking of the Chancellor and a potential reset of fiscal policy. It is worth remembering, however, that the energy cap is actually a very large part of the extra spending the government will have to do and that will not change.
The gilt market will be looking for a much more responsible and stable approach to government finances on 31 October. Until then, we can expect more volatility.