Bonds vs budgets

Katie Martin (0:00)

Listeners, for one of our shows to wrap up a fun 2025, we want to answer your questions. So email us, unhedged at ft.com. What do you want us to answer on the show? I can promise you, we will do our best. Pushkin. If you are anywhere near the UK, you will know that this year's budget from the government, the release of its big picture tax and spending plans, has been a whole lot of drama. So much drama. Leaks, U-turns to the leaks, accidental document releases, and now a resignation too. For something that aims to be nice and boring, it's been a whole scene. Through it all, you know who's been sitting in a zen-like state of calm? UK government bond traders. Those bonds, known as guilts, have held pretty steady, despite some short-lived wobbles throughout the whole thing. Today on the show, we're asking, what does that tell us? Has the government just done whatever the market wanted? This is Unhedged, the markets and finance podcast from the Financial Times. I'm Pushkin, I'm Katie Martin, a markets columnist, and soon mince pie making machine at the FT in bright sunny London. And I'm joined here in the studio by one of my esteemed colleagues who regrettably has not been in a Zen-like state of calm, but instead has been bashing out stories like mad. It's Ian Smith. Ian, it has been a kind of crazy week or so, and it's been one of those weeks where you write a lot of stories and then you have to rewrite them because the market has just changed direction. Has it driven you insane yet?

Ian Smith (1:44)

No, my Zen-like calm has been retained through the entire episode, I can assure you. It's been kind of chaotic and at the same time has landed okay. That's the kind of paradox of this budget, isn't it?

Katie Martin (1:55)

Yeah.

Ian Smith (1:56)

It's actually landed quite well with investors, but in an entirely chaotic way.

Katie Martin (2:00)

Like I say, this is supposed to be a nice boring process, and chancellors, that's what we call our finance ministers in the UK, sort of like to almost sort of be below the radar and no one really know or care what they're up to. But this has just been like full on for weeks. There were promises that were made or suggested, and then there were backtracks to the promises on taxes they were going to raise. And then the Office for Budget Responsibility, which puts out a report after the budget, saying this is what it all means, accidentally published it too soon, right before the budget.

Ian Smith (2:36)

Just as I was about to go and get my sandwich. So then I did all that reporting on an empty stomach, which probably didn't help. But no, from start to finish, it's been chaotic. Yes, I mean, we had a bit of a flavor of that in the U-turn on the planned increase in income tax, which a few weeks ago sparked a bit of a sell-off in the gilt market, because investors had been expecting, based on government briefings, that there would be a rise in income tax to help balance the books. And then we reported that the government had decided to step back from that, which caused a bit of volatility in the market. And then, as you say, on the day, nearly an hour before we were supposed to get the OBR numbers, they were suddenly out there on the internet and the gilt market moved and we all scrambled.

Katie Martin (3:22)

There was a lot of scrambling. And the latest is that the chair of the OBR, Richard Hughes, has just stepped down, hasn't he? He fell on his sword over this.

Ian Smith (3:31)

Yes, he has. Not something that has caused really a big market reaction. It was largely what people thought would be the inevitable consequence. But now, we're in a period of pouring over what exactly happened with the early release of the numbers, questions about who's going to lead the OBR from here, and what's the future for that as an important, independent body that investors rely on to get a picture of the public finances. Plus, there are questions following the budget, political questions around what was said in the run-up. So that feeds into speculation around the position of the Chancellor and even the Prime Minister. So we've got political intrigue.

Katie Martin (4:05)

Drama, drama.

Ian Smith (4:07)

A lot of drama. And at the same time, as I say, the budget itself sparked a bit of a rise in guilt prices on the day as investors were largely or broadly happy with what went down.