Rising Budget Worries Prompt Aviva to Sidestep Long-Dated UK Gilts
One of the industry’s biggest sovereign bond funds is sticking to shorter maturity UK gilts, on concern pressure will only intensify on longer government debt in the run-up to the Autumn budget.
One of the industry’s biggest sovereign bond funds is sticking to shorter maturity UK gilts, on concern pressure will only intensify on longer government debt in the run-up to the Autumn budget.
After a midweek bond selloff, Steve Ryder, manager of Aviva Investors’ £8.9 billion global sovereign bond fund, sees 10-year gilt yields most at risk of shifting higher. He prefers exposure to two- to five-year debt, which he predicts will be supported by Bank of England interest-rate cuts as the economy slows.
“There’s going to be an uncertainty premium embedded into the gilt market in the run-up to the budget,” Ryder said in an interview. “In the very front-end, you are still insulated because of the economic backdrop.”
Longer-maturity bond yields jumped on Wednesday amid speculation about Rachel Reeves’ future as Chancellor following Prime Minister Keir Starmer’s decision to scrap billions of pounds of welfare cuts. The moves have since eased, but traders predict volatility will resume as attention turns to tax increases in the runup to the Autumn budget — another potential policy U-turn.
Aviva’s global sovereign bond fund has returned 1.6% year-to-date, putting it in the top third among peers.
To be sure, many investors remain unfazed by the swings and the policy uncertainty, even using the selloff to add exposure to longer-dated bonds. Fidelity International bought 20-year gilts, saying the selloff “didn’t appear justified.”
But for Ryder, the long-end looks too risky for now, even as the market enters a period of limited new issuance.
“This fiscal uncertainty is probably going to keep the curve steep for a while,” he said.
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