We analyse the disruption to capital markets this following new UK chancellor of the exchequer Kwasi Kwarteng’s plan to fund tax cuts and energy bill support through extra government bond issuance, which spread across currencies and asset classes and ended — or perhaps just paused — with the Bank of England making an emergency purchase of some of those bonds just as the government was in the market issuing some. Sovereign debt managers often tell us they like their markets to be dull and predictable — this it most certainly was not.
But where does the UK go from here? We asked the market and heard that the way out of this mess was the government’s to navigate and that it could not rely on the Bank of England stepping in to maintain orderly markets as a permanent solution.
Italy is a country that has been more closely associated with volatile politics and markets in recent times. Indeed, an election result last week drove up the spread between Italian government bonds (Buoni del Tesori Poliennali, or BTPs) and German ones — a key indicator that shows investors believe Italy is becoming a more risky investment prospect when it rises.
That in turn affects Italy’s banks, of which there are many and which are big users of the markets to raise funding and capital. But, even as one Italian bank failed to price a deal in the markets this week, we uncovered the reasons why the funding picture for this key group of institutions in the European economy is better than one might think.
And finally, back to the UK where we have gauged reaction in the markets to the removal of the bankers’ bonus cap — another policy from Kwarteng’s mini budget. Spoiler alert: it’s not what you'd expect.