Britain’s government bond market is seeing a sharp move lower in yields, with 10-, 20- and 30-year gilts falling almost 30 basis points from last Friday’s levels and pointing to the largest one-week drop since December 2023.
Last week had been notable for a surge in gilt yields, which reached multi-decade highs amid concerns about domestic politics. That rise in UK yields was the largest among Group of Seven nations since the start of the Iran war. The reversal this week has taken place against a backdrop of softer-than-expected domestic inflation data and additional indicators that pointed to economic pressure.
Across the curve, the weekly decline in UK yields is about three times the magnitude of the fall seen in equivalent German bund yields over the same period, underscoring the relatively larger move in gilts. On Friday, gilt yields fell across maturities, dropping between 3 and 8 basis points depending on the tenor.
A key trigger for much of the decline arrived on Wednesday, when UK consumer inflation for April came in weaker than anticipated at 2.8%. That print appears to have been the primary catalyst for the bulk of the move lower in yields.
Separately, other economic indicators referenced by market participants suggested Britain’s economy is feeling strain from the fallout of the Iran war, a factor that contributed to the earlier rise in yields and that has since been folded into the market’s reassessment.
Summary
Gilt yields are heading for their biggest weekly fall since December 2023, with 10-, 20- and 30-year yields down nearly 30 basis points from last Friday. Softer-than-expected April inflation at 2.8% and other datapoints indicating economic pressure following the Iran war played central roles in the move. Friday’s trading saw yields slip another 3 to 8 basis points across maturities.
Key points
- 10-, 20- and 30-year gilt yields have dropped almost 30 basis points from last Friday’s levels.
- The weekly decline is the largest since December 2023 and is about three times the fall in equivalent German bund yields.
- Most of the move lower followed April inflation printing 2.8%, weaker than expected; Friday saw further small declines of 3-8 basis points across maturities.
Risks and uncertainties
- Political developments could reintroduce volatility in gilts - the market’s prior week spike was linked to domestic political concerns.
- Geopolitical fallout from the Iran war continues to weigh on the economy; further shocks could reverse recent moves in yields.
- Economic datapoints remain a key driver; future surprises on inflation or growth could change gilt direction quickly.