The September UK mini budget triggered a rise in Gilt yields, not seen since the 1970s and depreciation of the pound to a level not seen since 1985. The move was so extreme, we have never seen such a yield increase for Gilts, over a five-day period, since 1976. Defined Benefit Pension funds were forced to sell UK Gilts, pushing yields higher and increasing the liquidity shortage for Pension funds. The Bank of England intervened to break the cycle and offered to buy over £65 billion of the long-dated bonds. This intervention finalised on 14th October and stabilised the schemes liquidity position.
After a few tumultuous days, the Prime Minister appointed a new chancellor, Jeremy Hunt, who reversed most of the cuts previously announced, removing £32bn of unfunded tax (out of a mini-budget of £45bn). With fewer unfunded tax cuts, there will be less requirement for the Bank of England to increase interest rates, bringing some stability to the bond market.
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