The market particularly fears that the policies of US President-elect Donald Trump “are inflationary for economies around the world”.
Confidence is at half mast on the other side of the Channel. Yields on 30-year British government bonds reached their highest since 1998 on Tuesday, as the market worried about risks weighing on the British economy, fueled in particular by the expected policies of US President-elect Donald Trump. The borrowing rate for British Treasury bonds («gilts») at 30 years moved around 5.214% on Tuesday around 12:00 GMT, after rising a little earlier to 5.218%, the highest since August 1998. This long-term rate has returned above a peak of October 2023, but also peaks reached during the market crisis triggered in September 2022 by former British Prime Minister Liz Truss.
The market particularly fears that the policies of US President-elect Donald Trump “are inflationary for economies around the world”which has pushed up the dollar and diverted investors from bond markets, says Susannah Streeter, an analyst at Hargreaves Lansdown. In the United Kingdom, in particular, investors are anxiously watching inflation which “soared” while “the economy is stagnating”adds the analyst.
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Growth at half mast
Reviving activity is a priority for the British Labor government, which has not prevented growth figures from deteriorating in recent months. Gross domestic product (GDP) stagnated in the third quarter. And if inflation is no longer reaching the peaks of recent years, it has started to rise again in recent months in the country, to 2.6% year-on-year in November. Finance Minister Rachel Reeves presented the first budget since the election of the Labor Party at the end of October, with significant tax increases but also exceptional borrowing to finance investments.
But the market “unclear to what extent UK government investment in infrastructure will boost long-term growth” what weighs on “the appetite for buying long-term UK government debt”according to Susannah Streeter. Liz Truss’s government triggered a collapse of the pound and a surge in British government borrowing rates at the end of 2022 with a proposed budget with massive and unfunded spending. The Bank of England had to intervene urgently to avoid a financial crisis. State borrowing rates had fallen again, before resuming a slower but regular increase.
Swiss
