Sign in Subscribe
Starmer, Keir

Asset Managers Bet on UK Gilts Amid Chancellor Backlash

Strategic Insights

— 1 min read

UK Chancellor Rachel Reeves appeared more confident yesterday, saying she was "totally" committed to her role, as Labour leader Sir Keir Starmer gave her full backing, stating that she would stay in the post "into the next election and beyond". The decision triggered a market rally, with gilts and the pound recovering from a sharp sell-off earlier in the week. Asset managers such as BlackRock, Schroders, and Fidelity International took advantage of the market volatility, buying UK government bonds in anticipation of a sustained rally.

Key Takeaways:

  • BlackRock, the world's largest asset manager, added to its gilt holdings during the market sell-off, betting that gilts would outperform US Treasuries. They are "overweight" in the gilt market and believe the sell-off would not deteriorate further.
  • Schroders, a UK-based asset manager, also increased its gilt holdings, expecting that Starmer would be reluctant to oust Reeves due to concerns about a bigger market reaction.
  • Fidelity International purchased long-dated gilts after the "aggressive yield curve steepening," citing that the Labour party could not or would not risk a gilt market implosion.
  • The cabinet's unresolved internal conflicts over spending and borrowing could lead to a broader market volatility.
  • The gilt market sell-off was triggered by concerns over Reeves' departure and the potential loosening of fiscal rules.
  • Labour's welfare bill fallout and NHS reform plan launch have also put pressure on Reeves.

Statistics:

  • 0.07 percentage points: gilts' yield decrease on Thursday, following Starmer's comments (Source: The Financial Times)
  • 0.17 percentage points: gilts' yield increase on Wednesday, after the prime minister's reticence to give full backing to Reeves (Source: The Financial Times)
  • 4.55 per cent: yield on the 10-year gilt after the sell-off (Source: The Financial Times)
  • 10-year plan: length of Labour's plan for NHS reform in England (Source: The Financial Times)
  • 168 pages: the length of the 10-year NHS plan blueprint (Source: The Financial Times)
  • 2029-30: the deadline for matching spending with tax receipts (Source: The Financial Times)

Sources:

  • The Financial Times - "Asset managers bet on gilts amid chancellor backlash" - credited to IAN SMITH, JIM PICKARD, and EMILY HERBERT.
  • The Financial Times - news articles regarding Labour's welfare bill and NHS reform (references removed)
  • Virgin Radio interview with Sir Keir Starmer.

Read more