30-year gilt yields are down 10 bps on the day to 3.65% and the continued push lower is but a welcome development for UK markets in general. The fact that we have seen yields slide back under 4% does allow for some confidence to come back in but be mindful of the technicals now:
As the political uncertainty dies down, it should allow for less volatile trading in gilts but to say that yields are going to head back towards August levels or 3% is not likely to be on the cards. It will only take broader markets to be convinced of any central bank pivot to see bonds rally again – and we don’t look to be there yet.
Given the circumstances, the only positive thing is that the wild swings are likely to be less frequent now as the political circus comes to an end (at least momentarily) but the outlook for the UK economy remains rather bleak and challenging.
That will still translate to the pound facing a tough task to really pull itself up, with the path of least resistance still siding for a move lower in the quid.
