NatWest's Bachra on Truss' Fiscal Policy Plans

The video discusses the impact of Liz Truss's spending plans on UK gilt yields, driven by shifts in the Bank of England's policies and inflation expectations. It explores the fiscal stimulus's role in market repricing and the potential borrowing needs to cap energy prices. The discussion extends to the long-term economic impact of the energy crisis, comparing it to NHS spending. Challenges in attracting foreign investment for gilts and the role of domestic buyers, particularly pension funds, are also examined.

What has been the primary driver of the shift in the longer end of the UK bond curve?

• Government tax cuts

• Increased foreign investment

• The Bank of England's reaction function

• Changes in global oil prices

What is a significant factor in determining how much the UK will need to borrow?

• The amount of foreign aid received

• The rate of unemployment

• The number of new businesses opening

• The level at which energy prices are capped

What is a potential consequence of the UK's energy price cap strategy?

• A decade of economic growth

• Increased foreign investment

• A limit on repeatability due to high costs

• Immediate reduction in national debt

How does the current crisis differ from the COVID-19 crisis in terms of government spending?

• The government is focusing on healthcare

• The Bank of England is not backstopping yields

• The government is spending less money

• The Bank of England is conducting QE

Why might foreign investors be hesitant to buy UK gilts?

• High attractiveness of UK yields

• Strong UK economic growth outlook

• Unattractive cross-currency hedged basis

• Increased domestic demand for gilts

What has traditionally exerted downward pressure on UK bond yields?

• Government budget surpluses

• High inflation rates

• Rising interest rates

• Inelastic demand from pension funds

What change is expected in the demand for longer-dated gilts?

• Stability due to constant foreign demand

• Increase due to rising pension liabilities

• Fluctuation based on global oil prices

• Decrease as structural short diminishes