Worries about the US debt ceiling support gilts

Fears that the impasse in the US debt ceiling negotiations could lead to default by the US Treasury have prompted investors to anticipate a later tightening of UK monetary policy, equity prices to fall and the pound to strengthen. Gilt yields also stand lower than they were a month ago, despite the release of September's inflation figures which questioned whether one of the knockouts to the Monetary Policy Committee's forward guidance will be breached. So far, though, the impact of the US negotiations on UK markets has not exceeded that seen during the last debacle over the debt ceiling in 2011. And we remain cautiously optimistic that policymakers across the Atlantic will not force the US Treasury into an unnecessary default.