Gilts Ease Off 2007 Highs Into a Week That Decides the Cost of Money
A day after ten-year gilt yields touched 5.38% — their highest since 2007 — the global bond rally after America’s inflation print brought relief, with London shares near two-month lows as the market braced for the week ahead: a near-certain Federal Reserve rise on Wednesday, the Bank of England’s decision on Thursday with a hold the base case, and fund managers publicly warning that the government is “in hock to the bond market”.
The coming week is the autumn’s hinge: three central banks moving within seventy-two hours will set the rate environment the Budget must live in, and Britain enters it with the developed world’s most stretched borrowing costs and its most conditional central bank — a hold built on the hope that war inflation stays first-round. The “in hock” charge is impolite and accurate: with debt interest consuming a tenth of spending, the gilt market holds an effective veto over fiscal policy that no opposition party can match, exercised daily and without debate. July’s growth surprise buys goodwill; only credible Budget arithmetic buys yield. Watch Thursday’s vote split and any word on the Bank’s gilt sales — quantitative tightening is the lever markets increasingly expect to move first.