UK government bonds shrugged off the resignation of British Prime Minister Liz Truss on Thursday, after taking back her statement, while sterling held on to gains against the dollar.
The yield on benchmark 10-year gold was flat at 3.86% in mid-afternoon trading in London, after rising to 4.02% earlier in the session. The 30-year yield fell 0.04 percentage points to 3.94%, reflecting a small increase in price.
The moves followed a sharp rally in recent days, helped by the government’s reversal of most of the Truss tax cut plans last month.
“This is not really a game changer for the market,” said Lyn Graham-Taylor, rates strategist at Rabobank. “The biggest thing for gilts was the fiscal turnaround, but that’s already priced in, and the market probably assumes Sunak coming in won’t change things on that front.”
“But there are still a lot of questions about the internal politics of the Tory party and whether we end up with a general election. So I don’t think you’ll see the gold discount go away.”
The pound was up 0.4 percent on the day against the dollar at $1.126, having made a stronger advance ahead of Truss’ announcement. It also rose by 0.2% against the euro, to just under 1.15 euros.
In equity markets, Wall Street stocks were lower after the opening bell in New York. The S&P 500 was flat, following declines in the previous session, while the Nasdaq Composite was also muted. The regional European Stoxx 600 lost 0.3 percent.
The lackluster moves in equity markets came as current U.S. labor market data showed that initial jobless claims unexpectedly fell in the week ended Oct. 15, from 226,000 to 214,000. Economists polled by Reuters had expected a figure of 230,000.
Signs of a still-hot labor market have fueled expectations in recent months that the US Federal Reserve will continue its efforts to tighten monetary policy aggressively.
Concerns have intensified that taxes by the US and its global peers will turn the screws on monetary policy into a prolonged economic slowdown.
Investors have been watching the latest corporate earnings season closely for signs that high inflation is hurting business activity and consumer confidence.
Overnight, Tesla added to the uncertainty, with CEO Elon Musk commenting that economic conditions were “a little more difficult than they would otherwise be.” Shares of Tesla, one of the world’s largest companies by market capitalization, fell 7% in early trading in New York.
On Wednesday, consumer goods groups Nestlé and Procter & Gamble had reported falling sales volumes, with Nestlé chief executive Mark Schneider warning of higher prices.
“The honeymoon rally of the last few days ended yesterday. . . as investors turned their focus back to central banks and how quickly rates will rise,” wrote Jim Reid, strategist at Deutsche Bank.
The yen briefly slipped ¥150 against the dollar to hit a new 32-year low. The Japanese currency has fallen more than 20 percent against the greenback this year, reflecting the widening chasm between the Bank of Japan’s ultra-loose monetary policy and the tightening trend shown by other major central banks.
Additional reporting by Philip Stafford, Tommy Stubbington and Harriet Clarfelt