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UK government bond yields steadied on Monday, following Friday’s gilt market sell-off driven by investor concerns over the Budget.

The 10-year yield fell 0.01 percentage point to 4.57 per cent in early trading, remaining at around their highest levels in a month. Yields move inversely to prices.

The market on Friday suffered its worst one-day fall since July — with the yield jumping 0.14 percentage points — as bond investors reacted to the government’s U-turn on its plans to raise income tax in the Budget on November 26.

Chancellor Rachel Reeves and Prime Minister Sir Keir Starmer decided to rip up their tax plans for the Budget last week, fuelling investor fears that the government was unable to take tough fiscal decisions.

“The near-term fate of the gilt market is now very much in the hands of Reeves,” said Ben Nicholl, a senior fund manager at Royal London Asset Management.

If Reeves can “stick to the fiscal rules, cover the fiscal black hole credibly, show that debt is on a sustainable downward trajectory, and enact policies that bring down inflation, then gilts could have a strong finish to the year,” Nicholl added. “If not, then gilts could be in for a rocky ride.”

The pound was largely unchanged against the dollar at $1.316 in early London trading.

Market anxiety was stoked before the tax U-turn last week by a bungled Downing Street briefing that sought to head off speculation about a leadership challenge to Starmer but instead heightened it.

Martin Harvey, fixed income portfolio manager at Wellington Management, said the episode had raised “additional questions for the bond market because it highlights the political challenges associated with fiscal consolidation”.

“Even if the Budget at the end of November is deemed a success, the gilt market will continue to be sceptical about long-term sustainability and risk premia will remain relatively high,” Harvey added.