Last checked at 
* Yields jump after Sunak unveils budget
* 10, 30-year bonds set for worst daily performance since
Brexit
deal
* Money markets start pricing 10 bps BoE rate hike in Sept
2022
(Adds details, context)
By Yoruk Bahceli
March 3 (Reuters) - Yields on longer-dated British
government bonds jumped on Wednesday, posting their worst
performance since just before December's Brexit deal as the
government unveiled much higher borrowing to support the
post-pandemic economic recovery.
Economic growth would also recover quicker than originally
expected, forecasts showed.
In his annual budget speech, Finance minister Rishi Sunak
said the government would borrow significantly more in the
coming financial year than thought just a few months ago.
The UK economy will also return to its pre-pandemic size in
mid-2022, six months earlier than previously forecast, he added
.
The extra spending would see Britain's Debt Management
Office issue nearly 300 billion pounds in bonds during the
coming financial year, versus the 247.2 billion pounds the
market had expected.
The prospect of additional supply pressured existing debt
which was already hit in recent weeks by a global bond selloff
fed by expectations that a strong post-pandemic economic rebound
would re-kindle inflation.
Yields on 30-year gilts -- as UK government bonds are known
-- rose almost 10 basis points on the day to 1.33%, while
10-year yields rose 7 basis points to 0.76%, underperforming
peers in the U.S. and the euro area.
Both bonds were set for their worst daily performance since
signs of a Brexit trade deal emerged on Dec. 23. Bond yields
move inversely with prices.
"While we didn’t expect Chancellor Sunak to drop the fiscal
anchor at today's budget...the rise in the projected deficit
from 164 billion pounds to 234 billion has stoked the bond
market's concerns over the financing of this debt at a time when
yields are rising," said Simon Harvey, senior FX market analyst
at Monex Europe
Money markets now foresee a 10 basis point interest rate
hike by the Bank of England in September 2022, a sharp reversal
from expectations as recently as January that rates would be cut
below 0% by August 2021
Yields on British 10-year inflation linked bonds rose nine
basis points to -2.5%.
Shares in British homebuilders such as Persimmon, Taylor
Wimpey and Barrat rose more than 5%, as a tax cut for homebuyers
was extended to the end of June. Hospitality and leisure sector
firms benefited from Sunak extending business rates exemption.
The FTSE 350 travel and leisure index rose 2.6%
while shares in pub operator JD Wetherspoon gained more
than 6%.
The pound was steady, trading flat at just below the $1.40
mark, though it was up 0.3% against the euro on the day
The Debt Management Office also said 15 billion pounds of
the announced issuance will come from two new 'green' bonds --
which finance environmentally-friendly projects.
(Reporting by Yoruk Bahceli; additional reporting by Joice
Alves, Danilo Masoni, Ritvik Carvalho and Thyagaraju Adinarayan;
editing by Sujata Rao)
