UK markets rebound after huge sell-off

The pound and gilts recovered some ground on Tuesday after a historic sell-off as some investors scooped up the country’s battered assets.

Sterling rallied more than 1% to above $1.08 after collapsing to a record low on Monday, while yields on government debt slid around 20 basis points. The country’s stocks also gained while sterling corporate bonds steadied.

The rebound still leaves the UK’s markets vulnerable after a plunge that began late last week when chancellor Kwasi Kwarteng unveiled the country’s biggest fiscal giveaway in half a century. That triggered a meltdown in bonds and the currency as traders digested the effect on the country’s finances. 

“There is a bit of profit taking going on here, but we’re hesitant to read too much into the moves in terms of investor confidence returning,” said Simon Harvey, head of currency analysis at Monex Europe.

Gilts gained on Tuesday as traders scaled back wagers on how much monetary tightening the Bank of England stands to deliver over the coming months to tackle inflation. The yield on benchmark 10-year debt fell as much as 21 basis points to 4.03%, after rising as high as 4.25% on Monday. 

The Bank of England pledged to change interest rates “by as much as needed” on Monday afternoon in an attempt to calm market nerves and is monitoring developments in financial markets “very closely” governor Andrew Bailey said.  

Bloomberg. More stories like this are available on bloomberg.com