UK gilt investors expect budget to pass without market drama, Morningstar says
TLT•Most of eight fixed-income funds surveyed by Morningstar expect Britain’s October 28 budget to avoid stoking gilt-market volatility, and most said gilts offered attractive value.
1. Funds expect limited volatility
Most of the eight fixed-income funds surveyed by Morningstar did not hold significant overweight or underweight positions in gilts ahead of the budget. Several expect a cautious fiscal package, while Fidelity’s MoneyBuilder Corporate Bond Fund plans no meaningful change to its positioning.
2. Funds outline positions
Royal London’s UK Government Bond Fund expects no major new spending and is focused on five- to seven-year gilts, with an overweight in longer maturities. J.P. Morgan’s Aggregate Bond Fund expects a mix of tax rises and reforms, while Allianz’s Gilt Yield Fund is modestly long UK duration versus its benchmark and expects a cautious budget. BlueBay’s Global Investment Grade Corporate Bond Fund said the market reaction will hinge on a credible long-term fiscal plan.
3. Fiscal risk indicators steady
Britain’s bond yields are the highest among the Group of Seven advanced economies, largely reflecting expectations of higher Bank of England interest rates because of higher inflation rather than budget concerns. Indicators of fiscal risk, including the spread between yields and interbank rates and sovereign credit default swaps, have changed little in recent months, unlike in France.
