Following the Chancellor’s Budget, Ben Nicholl, Fixed Income fund manager at Royal London Asset Management (RLAM), comments on the outlook for the UK gilt market:
“The key focus for the UK gilt market was on just how high government borrowing would be; the answer being significantly above consensus expectations. The immediate market reaction should be to see yields move higher, however the market already has an optimistic view of the UK recovery priced in.
“As the Chancellor stated, higher yields increase the cost of servicing debt. It will be interesting to see what the Monetary Policy Committee (MPC) make of ever tightening financial conditions. As for index linked bonds, they may outperform nominal bonds initially due to lower than expected issuance, but UK inflation expectations are already very high when you take the transition from RPI (Retail Price Index) to CPIH (Consumer Price Inflation including Occupiers’ Housing Costs) into account.”