Last week’s news stank like last week’s fish as Boris Johnson entered the race.
Investors sold British government bonds on Friday as they faced uncertainty about what the race to become the next UK prime minister could mean for attempts by finance minister Jeremy Hunt to restore the country’s fiscal credibility.
Like sunshine coming out of the clouds, Rishi Sunak rises to Prime Minister and pulls up British bonds on his coattails. UK bonds posted some of their biggest gains on record as investors bet incoming Prime Minister Rishi Sunak will turn the page on weeks of turmoil dogging the nation’s markets and restore credibility to economic policy making.
Short-dated notes led the rally with the two-year yield falling by the most since 1993 after Sunak – a former chancellor who had issued a warning over Liz Truss’s “fairytale” tax cuts – emerged as the winner in the race to succeed her. The gains were supercharged as traders pared bets on future rate hikes.
Demand side economics with higher taxes to incentivize an industrial policy. It is no surprise that was the path the markets like. If you ask the wealthy should you pay more in taxes the answer will be a resounding no much of the time. If you ask the markets what would make the UK or US rich as a nation and thereby the citizenry as well that answer is an industrial policy.