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UK government bonds (gilts) fell sharply, erasing Wednesday’s gains, as markets shifted focus from a smaller debt plan to long-term fiscal concerns and the threat of rising global borrowing costs.
Key Market Moves:
10-year gilt yield surged to 4.81%, highest since mid-January
Gilts underperformed European peers as investor optimism faded
Market concerns include:
Limited fiscal headroom
Potential shocks (like global rate hikes or US tariffs)
What’s Fueling the Selloff?
Despite Chancellor Rachel Reeves restoring her fiscal buffer, analysts say the UK remains vulnerable to external shocks.
The Office for Budget Responsibility (OBR) warned Reeves’ buffer could be wiped out if:
Trump imposes 20% tariffs globally
Borrowing costs rise by just 0.6%
Fiscal Uncertainty Ahead
Autumn budget in October could bring tax hikes or spending cuts.
OBR estimates a 46% chance of Reeves breaking her fiscal rule (taxes funding day-to-day spending).
“Gilts are cheap, but not attractive,” said Vikram Aggarwal of Jupiter AM, citing risk over reward.
💬 What Experts Are Saying:
BlackRock: “UK borrowing costs are still vulnerable to spikes.”
Fidelity: “Expect slippage and erosion of fiscal buffer until Autumn.”
Vanguard: Took comfort in Reeves’ firm stance on fiscal discipline, but sees volatile path ahead.
Market’s Flip-Flop
On Wednesday, gilts rallied after a smaller-than-expected borrowing plan.
Now, uncertainty over the UK’s economic trajectory and Labour’s fiscal discipline has markets on edge again.
Bottom Line:
UK gilts are in “no man’s land” — caught between attractive yields and fragile fiscal fundamentals. With October’s budget looming and global risks rising, investors remain cautious.
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