Any expensive election pledges could unnerve investors, said Vivek Paul, chief UK investment strategist at BlackRock.
“As UK inflation declines and we get closer to the general election, the UK’s main political parties may be tempted to promise more flexible fiscal policy – the sooner this happens, the more likely bond vigilantes will return.” He told Bloomberg News.
Mohamed El-Erian, chief economic adviser at Allianz, said he expects “a year of volatile yields” with a “tug of war” between heavy borrowing that pushes interest rates higher, and weak economic growth that keeps borrowing costs low.
Michael Eakins, chief investment officer at savings and retirement group Phoenix, added: “Across the G3, namely the US, the Eurozone and the UK, 2024 is likely to see record levels of debt issuance.
“When you’re in a world where you’re getting a surge in terms of debt issuance, that signals higher government bond yields.”
A Treasury insider said the market-facing debt issuance showed the need to keep borrowing under control.
“The best way to keep government bond yields low is to maintain a tight grip on the public finances, which is what we are doing. As the Chancellor said, we will only cut taxes if it is sensible and responsible to do so,” the source said.