(Bloomberg) -- UK bonds stabilized Monday as a market rout sparked last week by the government’s borrowing and spending plans abated, with investors now turning to the US election and the Bank of England interest-rate decision.
The yield on 10-year government notes was little changed at around 4.45%, after surging more than 20 basis points last week to the highest level in a year.
UK debt had sold off sharply as investors fretted that fiscal easing announced by Chancellor of the Exchequer Rachel Reeves would reduce the scope for the Bank of England to lower interest rates. Traders are now betting on a quarter-point cut on Thursday and fewer than three additional cuts by the end of next year, compared to four previously.
“It may be too early for the BOE to shift to a more dovish stance, but we think that shift is essential to support any Gilt rally from here,” said Evelyne Gomez-Liechti, strategist at Mizuho International.
Investors are also turning their attention to the US presidential election, with markets unwinding bets on Donald Trump winning the vote after a poll showed Kamala Harris with a 47%-44% lead in Iowa — a state Trump has won in each of his prior elections.
Treasuries rallied on Monday, with the 10-year yield down as much as nine basis points to 4.29%, as Harris’s policies are seen as less expansionary. This supports the view that the Federal Reserve will continue to ease interest rates, with a 25-basis-point cut almost baked in for Thursday’s outcome.
(Updates throughout with context, analyst comment.)
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