Highlights

  • Long-dated gilts yields rose to high levels, in light of concerns over fiscal deficits across the developed world.

  • UK debt is lower than some European peers, and the deficit is expected to decline, with the November budget in focus.

  • Despite uncertainty, parts of the UK yield curve may offer attractive valuations vs other developed markets, in particular the short-term maturities.

In this edition

Yields on long-term government bonds in developed markets have been rising this year. In the UK, 30-year gilt yields reached their highest level since 1998, driven by inflation worries and concerns over government debt — though the UK’s debt-to-GDP ratio remains below that of some large European countries. Structural changes, such as fewer pension scheme buyers, add further complexity.

Government measures — higher employer national insurance, increased minimum wage, and energy price adjustments — have halted inflation’s decline, meaning the UK could face higher policy rates for longer compared to other advanced economies.  On a positive note, the government is showing an intention to improve its finances, and the fiscal deficit is also expected to decline. The main market focus will be on the November budget and the Bank of England’s actions.

30-year Gilt yields on the rise

Key dates

8 Sep

China Balance of Trade – Exports & Imports YoY 

 

10 Sep

US PPI MoM, China Inflation Rate YoY 

 


11 Sep

ECB Interest Rate Decision, US Core Inflation Rate MoM 
 

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