The yield on the UK 30-year gilt climbed 8 basis points on Wednesday to 5.20%, the highest level since the immediate aftermath of the September 2022 mini-budget crisis. The 10-year benchmark yield rose 6 basis points to 4.64%, while the 2-year held steady at 4.18%. The bear-steepening of the curve reflects sustained concern over the UK's fiscal trajectory ahead of Chancellor Rachel Reeves' Spring Statement, scheduled for May 14.
The Treasury's pre-Statement spending blueprint, leaked to multiple national outlets Tuesday evening, indicated additional capital expenditure commitments of £18 billion over fiscal years 2026-27 and 2027-28, primarily directed at electricity-grid upgrades, the AI Growth Zones programme, and accelerated NHS digital infrastructure. The Office for Budget Responsibility is expected to confirm that headroom against the 3% public-sector net debt rule has narrowed to £6.4 billion from £8.9 billion at the October budget.
Bond-Vigilante Setup
UK debt-management office (DMO) net financing requirement for fiscal year 2026-27 is now expected at £305 billion, up from £273 billion previously. The 30-year-to-10-year gilt curve has steepened by 24 basis points since end-March, mirroring movements seen during the 2022 episode. Sterling weakened 0.4% on the news to $1.224, with EUR/GBP at 0.869.
BlackRock fixed-income head of UK rates Becky Qin said in a Bloomberg note that "long-dated supply concerns are now the dominant variable for the gilt market — the marginal buyer of 30-year gilts simply cannot absorb this issuance pace without a meaningful concession." UK pension funds, historically the dominant long-duration buyer, have reduced their allocation to long gilts following 2022's LDI crisis and now hold roughly 28% of the long end versus 41% in 2021.
Bank of England Implications
The BoE's Monetary Policy Committee meets May 8 and is expected to hold the bank rate at 4.25% with a 7-2 vote. The minutes from the March meeting flagged three principal risks: services-inflation persistence, fiscal-policy expansion, and Iran-conflict-related oil-import costs. Goldman Sachs UK economist James Moberly expects the BoE to deliver one more 25 basis-point cut in August, lower than the 38 basis points priced into Sonia futures.