UK bonds hit record with Sunak as PM

Sterling bounces off session lows on Monday and pound bounces, as former prime minister Rishi Sunak won the race for prime minister, giving investors a greater sense of confidence in the soundness of Britain’s finances. Against the dollar, the British pound remained steady at $1.1303. The relief among investors was evident as gold-plated output plummeted.
UK bonds posted some of the biggest gains as investors bet the incoming Prime Minister Rishi Sunak would turn the tide in weeks of uncertainty that hit national markets and restore credibility. for economic policy making.
Short-term notes led the rally with two-year yields falling the most since 1993 after Sunak, a former prime minister, issued a warning about Liz Trusstax cut “in fairy tales” – emerge as a winner in the race to succeed her. Profits have increased as traders bet on future rate hikes. The pound also rose, before falling 0.4% to $1.13 at 5:42 a.m. in London. It is well below the peak reached in the first leadership contest of the summer, weighed down by huge economic difficulties ahead (UK credit score outlook has been corrected by Moody’s Investors Service changed to negative on Friday).
Britain’s main equity indexes closed higher on Monday after Sunak looked set to become the next Prime Minister following other candidates leaving the race. The blue-chip FTSE 100 index gained 0.6 percent, while the domestically-focused FTSE 250 index gained 0.8 percent.

Truss resigned last Thursday after a market meltdown that pushed yields to multi-year highs, forced the central bank to step in to stabilize markets and ultimately push her back on her plan. for a broad fiscal stimulus. Investors expect Sunak to draw a line below the economic damage.
Marc Ostwald, chief economist and global strategist at ADM Investor Services, said: “For now, it’s a relief that the ‘total chaos’ is over. “His credibility in the markets comes from having been a staunch prime minister and a polished communicator who wouldn’t ‘take the lead’ like the Truss government.”
For its part, Sunak was quick to warn on Monday that the UK was facing a “profound economic challenge”. The two-year gold-plated yield fell 37 basis points (100bps = 1 percentage point) on Monday and ended at 3.43%. Longer bonds also rallied, bringing the 10-year yield to 3.75%, the lowest since the former prime minister Kwasi Kwarteng announced its so-called small budget for the first time.
Attention has turned to next week – next week Bank of England meeting. While a 75bps gain is still fully priced in, expectations for a larger increase have faded.


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