Fund managers: UK bond market presents a ‘generational opportunity’ in 2025
The United Kingdom’s government bond market has surged into the spotlight this week, with long-term yields climbing to levels not seen since the late 1990s.
According to James Carter, a fund manager at W1M, this dramatic rise in yields presents a rare and compelling entry point for investors.
Speaking to CNBC, Carter described the current setup as a “generational opportunity,” particularly in the UK’s long-dated gilts, which he believes are pricing in excessive pessimism.
Why have bond yields soared to record levels
The yield on the UK’s 30-year government bond briefly touched 5.723% on Tuesday – its highest since 1998 – before easing slightly later in the week.
This spike reflects a combination of factors: persistent inflation concerns, shifting monetary policy, and waning demand from institutional investors such as pension funds.
Shorter-dated gilts have also seen volatility, though their yields have declined from earlier highs this year.
Carter attributes the steep yield curve to an unusually elevated term premium – the extra compensation investors demand for holding longer maturities.
“The term premium… is exceptionally high, particularly in the U.K., and that means a lot of bad news is priced in,” he said.
The implication is that investors are being rewarded handsomely for taking on duration risk, even as market sentiment remains fragile.
Why UK’s bond market is particularly attractive
While the majority of developed markets face fiscal and monetary headwinds, Carter sees the UK as uniquely positioned.
Japan’s real yields remain unattractive, and the US faces mounting fiscal challenges, compounded by political uncertainty and concerns over central bank independence.
In Europe, Germany’s planned spending surge and France’s legislative gridlock add pressure to sovereign debt markets.
UBS strategists echoed this sentiment in a recent note, calling the UK “one of the most interesting rates markets for the 2025 run-in.”
Though risks remain, particularly around budget credibility and thin demand, the long end of the curve appears undervalued.
For investors willing to look past short-term noise, the UK gilt market may offer one of the most compelling fixed-income opportunities in years.
Should you invest in UK bonds today?
Despite recent turbulence, Carter argues that the underlying fundamentals of the UK bond market are more resilient than headlines suggest.
Carter also emphasized the importance of fiscal credibility.
“As soon as the bond market starts to believe that… we are a safe pair of hands… that could offer a bid for gilts,” he said, referencing the government’s commitment to budget discipline.
A potential slowdown in the Bank of England’s quantitative tightening program could further support prices, especially given how far gilts have fallen from their pandemic-era highs.
All in all, with elevated yields, fiscal discipline, and undervalued long-term gilts, the UK bond market may offer rare upside for discerning investors willing to look beyond short-term volatility and sentiment.
The post Fund managers: UK bond market presents a 'generational opportunity' in 2025 appeared first on Invezz
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Fund managers: UK bond market presents a ‘generational opportunity’ in 2025
The United Kingdom’s government bond market has surged into the spotlight this week, with long-term yields climbing to levels not seen since the late 1990s.
According to James Carter, a fund manager at W1M, this dramatic rise in yields presents a rare and compelling entry point for investors.
Speaking to CNBC, Carter described the current setup as a “generational opportunity,” particularly in the UK’s long-dated gilts, which he believes are pricing in excessive pessimism.
Why have bond yields soared to record levels
The yield on the UK’s 30-year government bond briefly touched 5.723% on Tuesday – its highest since 1998 – before easing slightly later in the week.
This spike reflects a combination of factors: persistent inflation concerns, shifting monetary policy, and waning demand from institutional investors such as pension funds.
Shorter-dated gilts have also seen volatility, though their yields have declined from earlier highs this year.
Carter attributes the steep yield curve to an unusually elevated term premium – the extra compensation investors demand for holding longer maturities.
“The term premium… is exceptionally high, particularly in the U.K., and that means a lot of bad news is priced in,” he said.
The implication is that investors are being rewarded handsomely for taking on duration risk, even as market sentiment remains fragile.
Why UK’s bond market is particularly attractive
While the majority of developed markets face fiscal and monetary headwinds, Carter sees the UK as uniquely positioned.
Japan’s real yields remain unattractive, and the US faces mounting fiscal challenges, compounded by political uncertainty and concerns over central bank independence.
In Europe, Germany’s planned spending surge and France’s legislative gridlock add pressure to sovereign debt markets.
UBS strategists echoed this sentiment in a recent note, calling the UK “one of the most interesting rates markets for the 2025 run-in.”
Though risks remain, particularly around budget credibility and thin demand, the long end of the curve appears undervalued.
For investors willing to look past short-term noise, the UK gilt market may offer one of the most compelling fixed-income opportunities in years.
Should you invest in UK bonds today?
Despite recent turbulence, Carter argues that the underlying fundamentals of the UK bond market are more resilient than headlines suggest.
Carter also emphasized the importance of fiscal credibility.
“As soon as the bond market starts to believe that… we are a safe pair of hands… that could offer a bid for gilts,” he said, referencing the government’s commitment to budget discipline.
A potential slowdown in the Bank of England’s quantitative tightening program could further support prices, especially given how far gilts have fallen from their pandemic-era highs.
All in all, with elevated yields, fiscal discipline, and undervalued long-term gilts, the UK bond market may offer rare upside for discerning investors willing to look beyond short-term volatility and sentiment.
The post Fund managers: UK bond market presents a 'generational opportunity' in 2025 appeared first on Invezz
Read More
GBP/USD forecast ahead of Fed and BoE inflation data