LIVE MARKETS-For British gilts, a year makes a big difference

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FOR BRITISH GILTS, A YEAR MAKES A BIG DIFFERENCE

2025 didn't start well for British government bonds, or gilts. Along with President Trump and DeepSeek, a gilt market selloff was a big market theme last January.

12 months later, UBS have a note out saying how the situation looks rather different (for gilts at least, the note isn't about the other two).

In their summary, they say: "Gilts are cheap. Duration supply has been slashed, inflation is falling, the labour market is weak, volatility is low, sterling is low, the curve is steep, politics may be quieter for several months at least."

What's not to like in all that for a bond investor?

They have a target of 4.4% for the 30 year gilt yield, which would be a 75 basis point drop from its current 5.15%, that'd be quite the move. GB30YT=RR

UBS see more Bank of England cuts than market pricing, and while they think the BoE's Feb 5 meeting is quite soon for another cut, weak labour market data might make it a possibility.

Gilts have been performing reasonably well recently, the 10 year yield is at 4.41%, and a break past October's 4.37% would take us back to December 2024 levels. GB10YT=RR

UBS also say that, so far, much of the buying has been from domestic players, funds, but also banks and insurers.

The hope for policymakers is overseas players step in. UBS think they could.

"The possibility that they (foreign investors) buy into the better stories for gilts is an upside risk for gilts. The Italian paradigm, where domestic confidence ushered in foreign confidence is worth keeping in mind."

Italian bonds outperformed in 2025 with their spread to Germany's narrowing sharply as investors grew more confident about the Italian economy.

(Alun John)

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