Britain's bond markets were thrown into a period of intense volatility in the weeks preceding the Autumn Budget, as investors scrambled to interpret signals from the Treasury about the state of the public purse and potential tax rises.
The Chancellor's Signals Spark Initial Calm
The dramatic swings began following Chancellor Rachel Reeves' pre-Budget speech at Downing Street on November 4. Her remarks, which referenced downgrades to productivity and were widely seen as hinting at higher income tax, were initially welcomed by the markets. Investors sought certainty that the government was prepared to take firm action to stabilise the nation's finances.
This sentiment caused the yield on the benchmark ten-year gilt, a crucial indicator of government borrowing costs, to fall sharply. It dropped by as much as 1.2 per cent to a low of 4.379 per cent.
Speculation Peaks and Then Collapses
However, this calm was short-lived. Yields began to climb again in the following days, reaching 4.505 per cent by November 10. The volatility intensified when Chancellor Reeves appeared on BBC Radio 5 Live that same day, once again strongly indicating that tax increases were on the table. This second warning convinced many in the market that a specific 2p rise in income tax rates was being planned.
The reaction was immediate and severe. Borrowing costs plummeted, with the ten-year gilt yield crashing to 4.375 per cent on November 11, a fall of nearly 3 per cent from the previous day's peak. Chris Beauchamp, chief analyst at IG, noted that "her decision to reiterate the warning about higher taxes on November 10 caused the yield to drop," adding that the second mention resonated powerfully with traders.
Leaked Reversal Sends Markets Soaring
The narrative shattered just days later. On November 14, a report in the Financial Times revealed that Ms Reeves had, in fact, abandoned the plan to raise income tax rates. This news sent gilt yields soaring in the opposite direction, rocketing to a high of 4.582 per cent.
Mr Beauchamp described this surge as "even more dramatic" than the preceding falls and suggested it "hinted at a lack of grip" within Numbers 10 and 11 Downing Street. David Morrison, a senior analyst at Trade Nation, pointed to damaging "off-the-record briefings" around November 13 and 14 as the source of the turmoil. Yields remain significantly higher than before the initial tax rise speculation began.
Although the official Budget presentation provided some temporary relief, the fallout has continued. The ten-year gilt yield climbed back above 4.5 per cent in the days after the statement, underscoring the lasting market unease. Morrison concluded that the entire episode has been "an unedifying experience" for the UK's financial credibility.
