Liz Truss tax U-turn fails to halt bond market sell-off

British bonds went on sale last night after investors were unconvinced by Liz Truss’ attempt to undo the damage of her government’s mini-budget.

The sell-off came just as the Bank of England ended its £65bn intervention aimed at ending the chaos in the markets.

Now there are fears that British assets will come under more pressure next week after the Prime Minister reversed corporate taxes and Chancellor Kwasi Kwarteng failed to calm her political critics or answer doubts about public finances.

Yields on 30-year bonds – which move in the opposite direction of prices – rose sharply in the wake of a Truss press conference announcing the reversal of corporate tax plans.

Earlier in the day, bond markets were recovering in anticipation of the turnaround. 30-year yields — which represent the rate of return investors demand on government loans — were just 4.25 percent yesterday morning, but rose above 4.8 percent by late afternoon.

That brought them to the same level they had on Thursday, before speculation about Truss’ latest policy change had begun.

Shorter bond yields also rose as the pound fell nearly two cents to $1.1153.

In stocks, the FTSE100 gave up gains of more than 100 points seen earlier in the session to finish just 8.5 points higher.

“Overall, the markets don’t seem convinced that today’s announcement was enough,” said Investec economist Ryan Djajasaputra. By rolling back corporate taxes and a plan to abolish the top 45p income tax rate, the government is still left with £25bn in unfunded tax cuts from the £45bn originally touted in the mini-budget .

Paul Dales, chief economist at Capital Economics, added: “It is unlikely that the removal of Kwasi Kwarteng and the new plans to cancel the corporate tax hike from 19 percent to 25 percent from April next year on the full confidence of the financial markets.’

It was a massacre of 30-year bonds that had seen the Bank of England step in on September 28 with a pledge to buy up to £5bn of long-term bonds a day for 13 days.

The intervention initially seemed to work, but volatility erupted again. The Bank strengthened the program last Monday by expanding it with inflation-linked bonds and raising the daily limit to £10 billion.

Governor Andrew Bailey, however, acted to quell speculation it would be extended beyond yesterday’s end date — rejecting pleas from pension funds mired in the crisis. At an event in Washington earlier this week, Bailey warned, “You have three days left. You have to get this done.”

A final daily auction yesterday brought the Bank’s total bond purchases to £19.3 billion, comprising £7.2 billion in inflation linked bonds and £12.1 billion in conventional bonds.

James Athey, investment director at Abrdn, said there had been a “small sigh of relief in UK assets over the past 24 hours but added:” [UK bond] the market is probably already over.’