LONDON: Yields on British government bonds touched their highest levels since the Brexit vote on Friday as investors discounted the chance of a Bank of England rate hike next week and pondered the risk of a lot more public borrowing in the years ahead.
Ten-year gilt yields peaked at 1.312 percent at 1239 GMT, their highest since Britain's June 23 referendum decision to leave the European Union, and more than 5 basis points up on the day.
British gilt future prices fell while those for German Bunds held steady, and the spread between 10-year gilt and Bund yields widened by 3 basis points on the day to 111 basis points. If it closes at this level, it would mark the highest premium investors receive to hold British debt since the referendum.
The 10-year yield has more than doubled since touching record lows in August on growing signs that Britain's economy was coping surprisingly well with the immediate Brexit shock and expectations of higher US interest rates.
Twenty- and 30-year yields also hit new post-referendum highs as longer-dated debt underperformed shorter maturities.
With investors and most economists no longer expecting a fresh rate cut by the BoE on Thursday, attention has turned to the announcement on Nov. 23 by finance minister Philip Hammond of Britain's first budget plans since the Brexit vote.
"People have got the Autumn Statement at the back of their minds now," Alan Clarke, a strategist with Scotiabank, said.
He said Hammond might announce next month that public sector borrowing could overshoot the government's existing targets by as much as 150 billion pounds ($182 billion) over the next five years, given the expected Brexit hit to Britain's economic growth and the likelihood of higher public spending.
Furthermore, Britain's existing deficit-cutting forecasts looked ambitious even before the referendum, raising the prospect of an upward revision to borrowing by the independent budget office when Hammond announces budget plans.
"People are assuming there will be a lot more issuance at the longer end," Clarke said.
The yields on 20-year and 30-year British government bonds also hit their highest levels since the referendum on Friday, touching 1.945 and 1.825 percent respectively, up as much as 8 basis points on the day as they underperformed shorter-dated debt.
The Office for Budget Responsibility said in March it expected a British budget deficit of 72.2 billion pounds in the 2015/16 financial year to turn into a surplus of 10 billion pounds by 2019/20.
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