Bond markets could force a second budget, says investor

The bond markets may force Rachel Reeves to deliver a second budget if investors are disappointed by the chancellor's fiscal plans next week, a City investor has warned.

- Graeme Wearden

David Zahn, the head of European fixed income at Franklin Templeton, said the biggest risk from the budget on 26 November was that Reeves "disappoints", leading to a sharp rise in bond yields - the interest rate on UK government debt.

In that scenario "it forces her hand to do a secondary budget", Zahn told reporters in London. “It depends how the bond market reacts. If the bond market reacts very badly ... the government will have to react if bond yields start to go up too much,” he said.

Zahn suggested that it would be "unsustainable" if the yield, or interest rate, on either 10-year or 30-year UK bonds reached 6%. Such high interest rates created a "death spiral", he warned, meaning the government would be likely to act before yields rose that high.