Fiscal credibility key for Gilts & sterling

Although the latest sell-off in Gilts has been driven in part by expectations for higher interest rates, the accompanying fall in sterling suggests the risk premia attached to UK assets has risen. In our view, in the absence of a concerted attempt to regain credibility by UK authorities, we don’t foresee much of a rebound in Gilts or the pound soon.

In view of the wider interest, we are also sending this Asset Allocation Update to clients of our FX Markets and Global Markets services.

Note: We’ll be discussing the outlook for sterling and gilt yields – along with other big FX and bond market stories – in a 20-minute online briefing on Tuesday, 27th September at 10:00 ET/15:00 BST (Register here).