UK Bond Yields Drop After Economic Data, Easing Pressure on Reeves
A rally in British government bonds this week helps alleviate fears of fiscal challenges for finance minister Rachel Reeves.
British government bonds saw a rally for the third consecutive day on Friday, effectively reversing a spike in yields that had raised concerns over the country's fiscal stability.
Yields across a range of gilt maturities fell by about six basis points as of 1200 GMT, driven by weaker-than-expected retail sales data from December and a series of underperforming economic indicators.
The 10-year gilt yield dropped to 4.622%, down from a peak of 4.925% on January 9, its highest level since 2008. The recent surge in yields had raised the risk that Finance Minister Rachel Reeves might struggle to meet her fiscal targets without implementing further tax increases or spending cuts.
The rally in the bond market this week has helped alleviate pressure on Reeves, particularly following concerns raised by the opposition Conservative Party, which cited the sharp rise in yields as a sign that Reeves lacked market confidence.
The fall in yields was partly attributed to the likelihood of a potential interest rate cut from the Bank of England in February.
Investors are now pricing in an expected 68 basis points of rate cuts by the end of the year, up from fewer than 50 basis points earlier in the week.While the 10-year gilt yield has increased by just 5 basis points since the end of 2024, it remains around 0.35 percentage points higher than when Reeves presented her first budget in October, which outlined plans for higher taxes and increased borrowing.
Thirty-year gilt yields, which had surged earlier in the week, have now stabilized, rising by only six basis points from the end of last year.
Economic analysts remain cautious, with Oxford Economics’ chief UK economist, Andrew Goodwin, forecasting up to 100 basis points of rate cuts if the Bank of England's actions align with their predictions.
Yields across a range of gilt maturities fell by about six basis points as of 1200 GMT, driven by weaker-than-expected retail sales data from December and a series of underperforming economic indicators.
The 10-year gilt yield dropped to 4.622%, down from a peak of 4.925% on January 9, its highest level since 2008. The recent surge in yields had raised the risk that Finance Minister Rachel Reeves might struggle to meet her fiscal targets without implementing further tax increases or spending cuts.
The rally in the bond market this week has helped alleviate pressure on Reeves, particularly following concerns raised by the opposition Conservative Party, which cited the sharp rise in yields as a sign that Reeves lacked market confidence.
The fall in yields was partly attributed to the likelihood of a potential interest rate cut from the Bank of England in February.
Investors are now pricing in an expected 68 basis points of rate cuts by the end of the year, up from fewer than 50 basis points earlier in the week.While the 10-year gilt yield has increased by just 5 basis points since the end of 2024, it remains around 0.35 percentage points higher than when Reeves presented her first budget in October, which outlined plans for higher taxes and increased borrowing.
Thirty-year gilt yields, which had surged earlier in the week, have now stabilized, rising by only six basis points from the end of last year.
Economic analysts remain cautious, with Oxford Economics’ chief UK economist, Andrew Goodwin, forecasting up to 100 basis points of rate cuts if the Bank of England's actions align with their predictions.
