Unhedged Bonds vs budgets
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Dec 2, 2025 
Ian Smith, a Senior Markets Correspondent at the Financial Times, dives into the intricacies of bond markets and public finance. He unpacks the UK’s latest budget and its implications for global fiscal strategies. They discuss why gilt markets remained stable despite chaos, the ramifications of the OBR mishap, and the risks of future fiscal consolidation. Ian also highlights a shift towards shorter-term debt issuance, emphasizing political risks that could sway investor confidence, all while playfully debating seasonal treats and cats.
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Gilt Market Calm After Chaotic Build-Up
- The UK gilt market has stayed calm despite recent political drama and forecasting missteps.
- That calm reflects investor relief at a budget that reduced near-term fiscal risk and boosted borrowing headroom.
Budget Boosted Headroom And Shortened Debt
- The budget increased the UK's fiscal headroom from about £10bn to £22bn, easing immediate market concerns.
- The Treasury also shifted issuance towards shorter-dated gilts and reduced long-term supply to lower funding costs.
Don’t Backload Fiscal Adjustments
- Governments should front-load credible fiscal consolidation to maintain investor confidence.
- Delaying painful tax rises or cuts risks undermining credibility as the next election approaches.