UK borrowing costs shoot higher after night of Westminster chaos leaves Truss hanging by a thread 

UK borrowing costs shot higher today after Liz Truss’s premiership was left hanging by a thread following a night of chaos in Westminster.

Yields on the 10-year gilt climbed around 10 basis points during early exchanges to over four per cent.

However, rates on the 30-year gilt, which has come under severe pressure in the month since the mini-budget, nudged lower. The 2-year gilt yield jump.

Yields and prices move inversely.

Truss is fighting for her political life after a night of confusion and turmoil in parliament that has raised the risk of her being ousted by the Conservative Party.

After surviving a bruising PMQs in the afternoon, the prime minister’s home secretary Suella Braverman resigned late afternoon.

She explained in her resignation letter that she had accidentally sent sensitive information from her personal email, forcing her to quit.

However, she took a parting swipe at Truss. That set the scene for a chaotic evening vote on fracking in which Tory MPs were allegedly manhandled into the chamber by senior Conservatives to cast their support for the government.

A Number 10 spokesperson told journalists in the early hours of this morning the vote was in fact a confidence vote in Truss’s premiership, despite Tory officials telling MPs it was not.

“The UK’s borrowing costs have edged up again with 10-year gilt yields up above four per cent, another sign of the repercussions of political instability on financial markets,” Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said.

“The pound is experiencing the crushing effect of the strong dollar as well, and with rate rise expectations in the US still high, little relief seems ahead for sterling any time soon,” she added.

Sterling dropped against the dollar today.

Yield on 10-year gilt

Last night’s chaotic events have strengthened the likelihood of Truss being ditched as prime minister just over a month after she beat Rishi Sunak in the Tory leadership race.

Markets have cooled since last month’s botched mini-budget sparked a huge bond sell off and a collapse in the pound.

Yields on the 30-year gilt hit their highest level in over 20 years after the mini-budget on 23 September, but have since curbed. 

UK borrowing costs have fallen back below their international counterparts. The 10 gilt yield dropped below the US, Italian and Greek equivalent.

International bond yields have surged higher this driven by central banks hiking interest rates steeply to tame a historic inflation surge.

The US Federal Reserve has lifted borrowing costs by 75 basis points three times in a row and is expected to do so again next month. The European Central Bank lifted rates by the same amount at its last meeting.

Yields across the US treasury curve rose today. 

The Bank of England is expected by markets to launch a 100 basis point rise on 3 November, the biggest move in its 25 years of independence.

Ben Broadbent, one of the Bank’s top officials, today said the monetary policy committee will respond “promptly” to the government’s fiscal package on 31 October.

Chancellor Jeremy Hunt is scrambling to plug a £40bn hole in public finances before the fiscal statement later this month.