An ouster of UK Prime Minister Liz Truss may be what ultimately calms bond markets, according to Citigroup Inc. strategists.
Not even the departure of former Chancellor Kwasi Kwarteng, whose Sept 23 mini-budget unveiled a series of unfunded fiscal measures and unsettled investors, was enough to revive the pound and gilts. Thirty-year bonds slid on Friday, with 30-year yields rising 23 basis points to 4.78%.
“A further rally now likely requires the departure of the PM,” Citi analysts including Jamie Searle wrote in a note to clients. “The UK now faces a period of heightened market uncertainty without a clear policy strategy.”
Yields had climbed even after Kwarteng departed and Truss scrapped her plan to freeze corporation tax next year. UK bond futures then extended losses after Bloomberg reported Truss expects her new Chancellor of the Exchequer, Jeremy Hunt, to commit to carrying out no further U-turns on her economic plans.