UK 10-year gilt yields drop to lowest since August 18 at 4.668%, down 6 bps on day

UK 10-year gilt yields drop to lowest since August 18 at 4.668%, down 6 bps on day

UK 10-year gilt yields have fallen to their lowest level since August 18, 2025, dropping by 6 basis points (bps) to 4.668%. This decrease follows a period of significant volatility and rising yields in the UK gilt market, which reached multi-decade highs in recent weeks [1].

James Carter, a fund manager at W1M, has been vocal about the potential buying opportunities in the UK gilt market. He notes that the term premium, which measures the return on long-dated bonds relative to short-dated ones, is unusually high in the UK. This high term premium suggests that the market is already pricing in a significant amount of bad news, creating a potential opportunity for investors [1].

The UK gilt market has experienced notable volatility over the past few years, driven by events such as the 2022 "mini-budget" crisis and recent decreases in demand from UK pension funds. Despite this volatility, Carter believes that the current low sentiment and high term premium present a compelling case for buying UK government bonds. He argues that the UK government's commitment to fiscal discipline and the potential for the Bank of England to slow the pace of quantitative tightening could further support the gilt market [1].

Comparatively, Carter finds other markets less attractive. He points out that Japan's real yield is unattractive, the U.S. faces fiscal challenges, and the Eurozone is dealing with issues such as German defense and infrastructure spending and France's budget difficulties [1].

UBS strategists Giles Gale and Reinout De Bock echoed Carter's sentiments, calling the UK one of the most interesting rates markets in the terminal phase of 2025. They note that while the long end of the UK gilt market is cheap, it also has risks, such as potential fiscal drag and weak demand [1].

In conclusion, the recent drop in UK 10-year gilt yields to their lowest level since August 18 highlights the potential for investors to find value in the UK gilt market. Despite the volatility and risks, the combination of high term premiums, fiscal discipline, and potential policy changes from the Bank of England presents a compelling case for investors to consider.

References:
[1] https://www.markets.com/news/uk-gilts-generation-opportunity-analysis-918-en-EU/