Gilts Caught Between Twin Risks From Burnham Debut and Oil Shock

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Or sign-in if you have an account.rk}fkq24]}c77q}5q54gh71d_media_dl_1.png Bloomberg(Bloomberg) — Britain’s bond traders have spent Andy Burnham’s first week in office trying to price two different forces: the spending ambitions of his new government and the impact of oil prices hovering near $100 a barrel. THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountTogether, those twin forces lifted the 10-year gilt yield past 5% late Monday, where it’s remained all week — its longest stretch above that level since July 2008. While inflation and debt concerns are unsettling bond markets worldwide, uncertainty over the new UK prime minister’s agenda appears to be putting gilts at a particular disadvantage, especially as Britain already has the highest borrowing costs among the Group-of-10 developed nations.On Friday, the 10-year yield slipped about four basis points as oil prices eased, but still held about 5.04%.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try again“I’m in the cautious camp on the UK, holding no gilts at all,” said Craig Veysey, a fund manager at Guinness Global Investors. He said he prefers European government bonds, given the “fiscal position is far more stable and improving.”Read: Bank of England’s Bond Sales Complicated by Burnham UncertaintyBurnham rattled investors on the first day of his premiership by saying he will seek “any flexibility” within the constraints of the government’s borrowing and spending rules. The comments sparked a selloff in gilts and the pound on concerns that the nation’s already-heavy debt load will grow further.But investors are struggling to disentangle the impact of the new prime minister from the renewed US-Iran clashes which have pushed Brent crude a third higher this month. In an economy reliant on energy imports, higher oil prices tend to swiftly feed into inflation, potentially forcing the Bank of England to raise interest rates. While the bank is expected to keep policy steady at next week’s meeting, money markets see a roughly 70% chance of a September hike. In addition, oil prices risk amplifying concerns over Britain’s public finances. The government spent spent £11.8 billion ($15.7 billion) servicing its debt in June alone — almost as much as it transferred to local government — underscoring how elevated borrowing costs can crowd out funds for other priorities.“It’s very difficult to separate what the gilt market is thinking about Andy Burnham and what’s happening with the oil price,” said Colin Finlayson, a portfolio manager at Aegon Asset Management. He’s avoiding longer-dated gilts, which he expects will bear the brunt of the uncertainty.Some investors say Burnham deserves the benefit of the doubt, as he’s pledged to respect the fiscal red lines laid down by the previous administration. Ranjiv Mann at Allianz Global Investors, for instance, prefers gilts to other G10 government bonds, and expects the BOE to hold off hiking rates until the government unveils its tax and spending plans later in the year at its Autumn Budget.That budget is emerging as the key focus for gilt investors, who retain painful memories of the gilt rout former prime minister Liz Truss unleashed in 2022, when she unveiled a plan for sweeping tax cuts.In the meantime, the 5% yield is already raising the government’s debt expenditure, according to Nicolas Trindade, senior portfolio manager at BNP Paribas Asset Management, so the “last thing you want to do is increase that even more.”“It will be an interesting few weeks going into the Autumn Budget,” he said. “But I think they know that the room for error is very, very limited this time around.”—With assistance from James Hirai, Anna Edwards and Naomi Tajitsu.This advertisement has not loaded yet.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. 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