The temptation to explain every lurch in gilts through the prism of Westminster is understandable – but misleading, argues Stephen Snowden, Head of Fixed Income at Artemis.
For Snowden, the summer's sharp steepening in the UK curve owed as much to Threadneedle Street and global term premia as to any lingering ‘moron premium' attached to fiscal policy.
A reluctant Monetary Policy Committee, a still-hawkish reaction function and an uncompromising quantitative tightening schedule have all, in his view, nudged investors towards demanding structurally higher real yields. At the same time, the traditional domestic bid from defined-benefit schemes is steadily disappearing as more schemes head for buyout, forcing the market to clear at cheaper levels.
For bond investors, Snowden believes this creates an uncomfortable but attractive set-up: more volatility and policy risk, but some of the most compelling valuations in decades for long conventional and index-linked gilts.
Read the full article to explore gilt market dynamics and the implications for portfolio positioning.
