Headline: UK Gilts Drop as Fiscal Doubts Push 10-Year Yield Above 4.5%
The UK government bond market opened sharply weaker as investors reacted to reports that Chancellor Rachel Reeves may shelve planned income tax increases, reigniting concerns about the country’s fiscal outlook. The shift drove a broad selloff in gilts and put fresh pressure on the pound sterling.
The 10-year gilt yield jumped more than 10 basis points to around 4.54% early in London trade, reflecting expectations of higher borrowing needs and a larger fiscal risk premium. With prices falling across the curve, traders are reassessing how the government can meet its fiscal rules without additional revenue measures, keeping volatility elevated in the UK government bond market.
Sterling softened alongside the move in rates. EUR/GBP rose about 0.5% to 0.8860—its highest level since April 2023—while GBP/USD slipped roughly 0.5% to near 1.3125. The combination of rising yields and a weaker currency underscores investor caution as markets await clearer guidance on tax policy and debt issuance.
Key Points – UK 10-year gilt yield rises by over 10 bps to roughly 4.54% at the open – Reports indicate the government may drop plans to raise income taxes – Gilts sell off on concern over borrowing requirements and fiscal sustainability – Pound weakens: EUR/GBP near 0.8860; GBP/USD around 1.3125 – Investors demand a higher risk premium for UK assets amid policy uncertainty
