In the first half of 2025, global bond yields moved significantly as volatility was triggered by events such as US tariffs, Middle East conflict, interest rate cuts, and ambitious European defence spending.
UK guilt closely reflects these trends, with a variety of domestic factors affecting the market. So, what should investors expect in the second half of the year? We focus on political risk, monetary policy, bond supply and global trends. We will examine whether the UK gold leaf market benefits from a rotation from the US Treasury and how it is reflected in the actions of asset managers.
Starting with political risks, the Labour Government has navigated two important events this year without causing volatility in the bond market. Spring Statement on March 26th and Spending reviews for June 11th. However, the most stringent tests are ahead, with fall budgets scheduled for late October or early November. Here, the Prime Minister must plan tax and spending next year and convince the market that the work “restores our financial stability” is on track. New spending commitments such as defense could lead to tax rise in the fall, and some experts take a look at our May article, Bond manager fears Rachel Reeves will break fiscal rules.
The bond market is tense, but not panic
Bond Market has been closely watching the government’s financial plans for the remainder of the year, but “there is tension, but there is no panic,” says Mark Presket, Morning Star Wells Portfolio Manager. Despite a surge in the middle, the gold leaf in 2010 was roughly the same as the beginning of the year, at around 4.48%. He expects volatility to increase along with budgets. However, recalling the 2022 mini budget, which overthrew the Prime Minister and Prime Minister, “the risk of selling the 2022 style is very low.”
David Roberts, Bronze rated Comanagher Nedgroup Global Strategic Bond Fundand is also optimistic about the UK’s financial situation.
“The UK’s financial position doesn’t seem to be that bad,” he says. It has lifted the “debt brake” that allows government spending in favor of the UK with Germany. He also expects volatility in the UK bond market in accumulation at the next UK “fiscal event”, but considers this a “great tactical opportunity” when bond prices slide.
He adds that it is important to be aware of political risks, but “economics usually wins politics.” UK inflation and interest rates are not high by historical standards, and “the internal economy is much better than many people imagine.”
The steep slope of the British yield curve
Fund managers note that the UK is the subject of global trends. This was a steep yield curve this year, with the growing gap between short-term and long-term yields. For example, the yield on UK Guilt over 30 years has increased by 65 basis points since June 2024. This is a trend seen in the US, Japan and Germany.
This increases the government’s long-term borrowing costs, but increases the yields investors receive on loans to sovereignty over 30 years. Roberts of Nedgroup says that after a period when investors were not paid enough premiums to lock in the money, the steeper yield curve is part of the “normalization” of the bond market.
Ultimately, this is not a UK issue, but rather a bond head and manager of the Edentree Global Sustainable Government Bond Fund, said David Katimbo-Mugwanya.
“Therefore, concerns about fiscal discipline are heavy not only in the UK, but also in most major economies where governments are seeking to drive growth due to increased spending in the US and Europe.”
Where will the next one be for interest rates?
Bond market prices reflect potential interest rates. The UK received two cuts this February and May. It also shows that the market is hoping for two more cuts in August and November. Will the Bank of England cut interest rates in 2025??
The UK’s interest rates are higher than in Europe, so the main interest rates are higher. This is because inflation is also high. In the eurozone, this is an annual increase of 3.4%, not 1.9%. Central banks use interest rates to tame inflation. The Bank of England rose from 0.1% to 5.25% to curb double-digit inflation.
UK interest rates have been on a downward path since August 2024, and banks have described this as “a progressive and cautious approach to further withdrawal of monetary policy constraints.” Another tool in the BOE arsenal is quantitative tonedness. Central banks sell UK government bonds acquired during the quantitative easing period (QE) used during the financial crisis period, where banks wanted to stimulate the economy at lower rates.
Bank of England sells UK debt
The bank has acquired approximately £900 billion in UK sovereign debt since 2008. This is a mountain that has dropped to around £600 billion in a wave of bond sales. Catherine L. Mann, a member of the bank’s monetary policy committee; I said in my June speech These bonds “sales are gradually predictable in the background and are designed to occur at mild times rather than market or economic stress, unlike QE.”
Given the size and impact of this holding, are these bond sales “are overflowing with the market” in UK debt, are they lowering prices? Some fund managers suggest that banks slow this process down. The decision on the next phase of QT is scheduled for September, with a new schedule expected to continue in October for another year.
Morningstar Pressket is skeptical of this theory and note that many of the bank’s gold leaf holdings mature and are held for maturity, suppressing the supply of new bonds to the market. He compares the UK’s position with Germany. Germany is expected to issue new debts of billions of euros for financial spending, including defense.
The retail investment platform also reports persistent interest in the gold leaf problem from non-professional investors. This is unlikely to move prices, but the yields offered are still relatively attractive to bond investors. According to MoneySavingExpert’s latest rate roundup. Investors will need to lend to the UK government for 10 and 30 years to beat that rate. See the article, Want to buy UK government bonds?for comparison of cash and bond risk.
Are UK assets a safe haven?
As for global trends, one of the market stories in the tariff era is repeated as investors move away from dollar-controlled assets, with related threads that US Treasury bonds begin to lose their “safe” status. Can UK bonds benefit from this flow of money from the US to Europe? Morningstar wealth is increasing its allocation to UK debt, particularly in its latest June portfolio rebalancing. Preskett said.
He also argues that despite the pound’s recent strong run against the dollar, it should go further and that Sterling may need to increase it religiously and religiously appealing. UK assets could be safe havens, he says, “if not the safest.” What works in the UK favor, he says, is a strong credit rating with very low risk of default, a “reasonably acting” central bank, and world-renowned governance. The UK government is under pressure on its fiscal plan, but Labour won the majority in the 2024 election and will not face voters until the end of the decade.
Still, the Japanese yen, Swiss franc and the US dollar will still maintain control as safe haven currencies, he says.
Asset Managers are purchasing UK debt
Looking at the average outlook from global asset managers, I support the idea that UK debt can see strong demand for the remainder of the year. HSBC Asset Management says it has increased UK and Germany’s 10-year debt exposure, Japan’s equivalent debt exposure, and maintains a neutral position on US debt.
“Traditional safe havens are less effective and have become a new safe alternative, including the European period, Asian bonds and the association of gold gains,” the bank said.
Goldman Sachs’ asset management also claims that the central bank will lower interest rates for the remainder of the year, which will result in lower yields and raise government bond prices.
“It is expected that weakening global trade and growth will likely strengthen monetary policy action in Europe (despite the ECB expressing confidence in the eurozone economy’s resilience to the trade shocks).”
