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Traders in UK government bonds helped topple Liz Truss. Now they’re setting their sights on the next goal: ensuring her successor will stick to the fiscal discipline required to shore up the country’s fragile finances.
Should word get out that the party’s considering a new prime minister who embraces fiscal largesse or any other unorthodox position, the market reaction, they warn, will be as swift and severe as the wild four-week-long rout that followed Truss’s ill-fated proposal to slash taxes and boost spending. As Gordon Shannon, a portfolio manager at TwentyFour Asset Management, put it: “Don’t mess with bond vigilantes.”
Some of this, of course, is just trading floor bravado.
Traders and investors are feeling powerful after watching Truss step down after only 44 days in office. But some of that power is real.
They now have the ability to help influence policy and politics in the most meaningful way for years.
The BOE is now slowly stepping back out of the market as part of its push to tame inflation, ceding more ground to investors to bid yields higher or lower in response to policy choices.
“The markets are clearly in charge now,” said Scott Service, portfolio manager and co-head of global fixed income at Loomis Sayles. – Bloomberg
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