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UK Budget Set to Test Gilts Market Amid Elevated Yields
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The Budget Looms as a Test for UK Gilts
The United Kingdom’s fiscal plan is scheduled for release in just over a week, and market participants view the event as a pivotal moment for government bonds (gilts). With yields already at historically high levels, analysts suggest that a budget free of surprises could trigger a rally in gilt prices, while any unexpected policy shift might reignite volatility that has characterized the market in recent months.
Recent Gilts Performance and Market Sentiment
Although the gilt market has avoided the speculation-driven turmoil seen elsewhere, it has not been entirely calm. Long-dated gilts posted their first weekly gain in four weeks, indicating a modest improvement in sentiment. Nonetheless, daily price swings remain pronounced, reflecting lingering uncertainty about fiscal direction.
Analyst Views on the Upcoming Budget
- HSBC’s chief multi-asset strategist Max Kettner argues that concerns are largely priced in, making longer-dated gilts attractive.
- Jason Borbora-Sheen, a senior manager at Ninety One, notes that gilts have “been through the fire,” and that investors are reassured by the government’s awareness of the market’s policy relevance.
- Asset managers M&G Plc and Ninety One Plc are increasing their gilt holdings, signaling confidence in the market’s resilience.
- Commentators Georgia Hall, George Nixon, and Alice Atkins contend that a budget without surprises could spark a relief rally.
- Former London mayor Andy Burnham, previously critical of the UK’s indebtedness to bond markets, has since adhered to fiscal rules, a shift that analysts say has helped calm nerves.
Potential Implications for Investors
If Chancellor John Healey delivers a budget that maintains fiscal discipline, the market may reward gilts with higher demand and tighter spreads. Conversely, any policy surprise could revive the volatility that has made weekly price swings a norm, prompting investors to reassess risk exposure.