Data-driven insights and analysis from our investment team every week.
The intraday movements in the rates at which markets will lend to the UK government are often faster and more volatile than the fluctuations seen in other government bond markets. Occasionally, this can be the catalyst for angst and media headlines that generate a reinforcing feedback loop and hence localised momentum in UK markets, at least for a time.
More often, however, the intraday noise offsets and disappears from view when observed over a medium timeframe. For now, it seems it is the latter dynamic that has been playing out in the UK gilt market in recent days and weeks.
Over the past three decades, UK gilt yields have tracked US Treasury rates remarkably closely, despite their geographical distance. Yes, they dipped temporarily below them around the Brexit vote in 2016, but they realigned following Liz Truss’ ill-fated budget in 2022, and the two markets have remained tightly bound since then.
The chart shows that despite attention-grabbing UK-centric headlines, recent market movements have not yet threatened this close relationship. The rise in UK gilt rates to date has not been an idiosyncratic move. While day-to-day movements may appear dramatic, the overall trend has been consistent with the global shift towards higher rates, as seen in US, German, and other developed bond markets.
