Ten-year UK gilt yields have fallen by about 25 basis points since the Autumn Budget, according to Deutsche Bank Research. The bank’s note, written by Shreyas Gopal, Sanjay Raja and Maui Brennan, links the decline partly to lower oil prices.
Higher equity market volatility has also helped push borrowing costs down, the note suggests. Deutsche Bank describes global factors as playing a large role in the move.
Gilts outperform peers
UK gilts have also done better than their US and German equivalents. Deutsche Bank estimates that 10-year gilt yields have fallen by about 12 basis points more than those benchmarks.
The bank says the Budget met three pre-Budget benchmarks: headroom, near-term consolidation and total gilt issuance. It argues that this partly explains the relative move.
A hawkish Bank of England week
The outperformance has taken place even though the Bank of England meeting last week was more hawkish than expected. UK bond yields rose by 5 basis points more than their peers after that meeting, the note says.
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Deutsche Bank says the Chancellor is likely to be content with the market reaction to his first Budget. It adds that the post-Budget gilt outperformance is not quite as stark as last year’s.
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Source: Deutsche Bank
