UK Gilts Buckle After Mini-Budget Shock
What Happened
A September 23 “mini-budget” unveiled large unfunded tax cuts and energy support, prompting a swift selloff in gilts and plunge in sterling. Thirty-year gilt yields jumped over 100 bps in days, exposing leveraged pension LDI strategies and raising questions about policy credibility.
What It Means
Markets doubted the UK’s fiscal anchor just as the Bank of England was raising rates to fight inflation. The gilt move forced collateral calls for pension funds, setting up a systemic risk that later pushed the BoE to announce temporary gilt purchases.
What I Think
Fiscal and monetary signals collided. I expect UK policymakers to retrench to reassure investors, and LDI managers to trim leverage and extend collateral buffers. The episode is a case study in how fast “risk-free” assets can move when credibility slips.
Market Terms
- Unfunded mini-budget – Tax cuts without offsets jolting gilt markets.
- LDI collateral squeeze – Pension hedges strained by 100 bp yield spikes.
- Sterling slide – Currency punished alongside the gilt selloff.
- BoE rescue buying – Temporary purchases to stabilize long-end yields.
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