Market News

Reports the U.K. government may backtrack from its controversial budget plans have stabilized debt markets and sent the pound rallying, ahead of a Friday deadline for the Bank of England to end emergency support for the bond market.

The pound GBPUSD, 1.52% jumped to $1.1257, from $1.1058 on Wednesday. The yield on the 30-year gilt TMBMKGB-30Y, 4.490% fell 33 basis points to 4.48%.

A reporter for Sky News tweeted that sources have said there’s discussion on “which bits might yet be junked” from the controversial U.K. budget announced in September by Chancellor of the Exchequer Kwasi Kwarteng. Earlier, The Times reported Prime Minister Liz Truss has been told to “rip up” last month’s budget by advisers.

That mini-budget plan called for roughly £45 billion of tax cuts. Already the government has reversed one cut, to those making more than £150,000.

Since then Chancellor Kwarteng moved up the release of the government’s full fiscal plans to Oct. 31, the same day the independent budget forecaster, the Office for Budget Responsibility, will deliver its verdict.

Meanwhile, the Bank of England so far is sticking to its plan to withdraw emergency support by Friday.

The central bank’s purchases of gilts are focused on the longer end of the maturity spectrum, to help pension funds unwind their hedging strategies that ended up being leveraged bets on U.K. bonds.

Through Wednesday, the central bank has bought £8.76 billion of bonds during the two week program. It can buy up to £10 billion per day.

Earlier Bank of England Governor Andrew Bailey told pension funds they need to finish rebalancing their positions this week, even as the pension fund industry has asked for the central bank to keep support in place until the end of the month. The Bank of England said there’s over £1 trillion invested in liability-driven investment, or LDI, strategies.