Well, I guess they’re not wrong, but there are domestic factors that have also driven UK bond yields higher. The latest budget is of course the one that market players allude to a lot. The highest 10-year gilt yields this week was 4.92%, but even now at 4.83%, it is still the highest since 2008.
Monthly chart of UK 10-year bond yields (%)
PIMCO continues to maintain a positive outlook for UK gilts despite this latest round of selling. Adding that the chances of a fiscal cut in the UK are growing.
“If the current trends of rising yields and slowing growth continue, the chances of spending cuts or tax increases will increase in order for the government to comply with its new fiscal rules.”
It was a bit of a jolt for many bond players, who at the start of the year expected gilts to rally on the narrative that the BOE would cut rates amid a slowing economy. But now we see that concerns about stagflation should certainly not be underestimated.