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British Pound: Bond underperformance draws bids alongside JPY – BNY

FXStreetMay 28, 2026 7:56 AM
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BNY’s Geoff Yu argues that steepening in G10 bond curves and stagflation concerns are generating fixed income-based rebalancing signals that should benefit the Pound and Japanese Yen. Poor performance of gilts and JGBs, combined with political uncertainty in the UK and persistent pass-through issues in Japan, is expected to draw some bids into GBP and JPY.

Stagflation fears aid Pound and Yen

"In contrast to equities, fixed income-based rebalancing has generated more signals due to significant steepening across key G10 markets as inflation expectations surged throughout the month."

"GBP and JPY should also find some bids: gilts have performed poorly due to the combination of stagflation fears and political uncertainty, with the latter generally pointing to greater fiscal impulse upon resolution."

"JGBs have also continued to underperform as the JPY has given up its post-intervention gains and pass-through remains a severe issue."

"We expect fixed income volatility to remain high. As hopes for a peace agreement picked up toward month end, the long end of bond curves was already flattening, reducing some rebalancing pressures."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

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