DeVere Group: Five things the gilt market demands from Healey’s first Budget
Britain’s bond market will judge John Healey’s first Budget on five things, and it’s likely to deliver its verdict within minutes of him sitting down, warns the CEO of deVere Group, one of the world’s largest independent financial advisory organisations.
The comments from Nigel Green come as the Chancellor rises in the Commons at 12:30pm GMT, with the Office for Budget Responsibility releasing its five-year economic and fiscal forecasts straight after.
He says: 'Gilt investors will strip this speech back to five things: the size of the buffer, whether the numbers are believable, how much debt is coming and at what maturity, where inflation goes next, and whether the tax and welfare measures can survive Parliament. Get those right and borrowing costs could ease. Get them wrong and the bill shows up in mortgage rates, business borrowing and the Treasury’s own interest costs.'
Every Chancellor since 2022 has worked in the long shadow of Liz Truss. Her Mini Budget that September promised around £45bn of unfunded tax cuts, went ahead without an OBR forecast and sent gilt yields soaring. Pension funds running leveraged liability-driven strategies were hit with margin calls they couldn’t meet, the Bank of England launched emergency bond buying, and Truss left Downing Street after 49 days.
'Truss taught the gilt market it has a veto,' explains Nigel Green. 'Investors learned they can force a government to change course within days, and they haven’t forgotten. Every Budget since has been written with that audience in mind.'
The first test is fiscal headroom. Rachel Reeves had built the cushion against her borrowing rules to roughly £24bn. Higher yields and the energy shock from the Middle East war have since eaten into it, with economists now estimating anywhere between £8.5bn and £16bn.
'Double digits is the floor,' says the deVere CEO. 'A buffer in single figures would tell markets Britain is one bad quarter away from breaking its own rules, and gilts would likely sell off hard.' The second is credibility, and how the cushion is assembled.
'Spending cuts pencilled in for the far end of the forecast, cheerful growth assumptions and defence decisions shunted into next year will all be spotted quickly,' he says. 'Creative accounting is the fastest way to lose this audience.'
Third comes supply. The Debt Management Office’s revised borrowing plan lands alongside the Budget, and a poll of all 15 primary dealers points to 2026/27 issuance rising by £3.4bn to £249.6bn, with roughly 42.7% expected in short-dated gilts.
'The DMO has been smart about keeping long-dated supply in check,' notes the deVere CEO. 'Any surprise increase at the long end would hit the 30-year immediately, and it’s the part of the curve where nerves are rawest.'
The fourth is the OBR’s view on borrowing and prices. Borrowing between April and September reached £97.8bn, against a forecast of £91.8bn. Inflation jumped to 3.5% in September, above expectations, and with Bank Rate at 3.75%, markets are bracing for a possible hike on 5 November.
'How the cost-of-living package feeds into prices matters hugely,' he says. 'If the OBR believes it pushes inflation higher, the Bank of England is likely to feel it must tighten, adding to the government’s debt costs at the worst possible moment.'
The fifth is whether the money can be raised at all. With income tax, National Insurance and VAT ruled out, around £5bn of tax rises on online retailers, gambling, bank profits and the tax gap is expected, alongside a contentious cut to Universal Credit health support for under-25s.
'Markets will price political durability as closely as the sums,' explains the chief executive. 'A saving Labour backbenchers look likely to overturn is worth nothing to a gilt investor.' All five land on a market already on edge. Earlier this month the 30-year yield touched 6.05%, its highest since 1998, while the 10-year hit 5.527%, a level last seen in 2007.
'Keep an eye on whether gilts and the pound fall together,' he says. 'Yields climbing on stronger growth hopes can lift sterling. 'Yields climbing alongside a weaker pound would signal confidence is draining away.'
He concludes: 'There’s real opportunity here. UK yields have risen broadly in line with other major economies, politics has steadied and the Bank has paused its own gilt sales. A Chancellor who passes all five tests could see borrowing costs ease, and a first Budget that earns trust today buys Healey room for every decision that follows.'