So far, 2026 has seen UK gilt yields fall, with yields lower now than at any time throughout 2025.
What is behind this move?
“The move is largely linked to confidence that inflation in the UK is easing faster than expected, broadly cementing our house view that there will be two rate cuts here [in the UK] in 2026,” said Hal Cook, senior investment analyst at Hargreaves Lansdown. “Markets are suggesting that the first of these could be as early as April.”
The clear desire from the government to change their future plans around issuing government bonds is also having an impact, added Cook.
“The government wants to reduce the amount of long-dated gilts being issued in future, in favour of issuing shorter-dated paper,” Cook said.
The increased flexibility that comes with issuing shorter-dated paper, particularly when there are concerns around longer-term debt affordability, are potentially a plus.
“It’s also positively viewed by a market that has fewer buyers of longer-dated gilts today than it did a few years ago – due largely to a shift in the pension scheme market,” added Cook.
It is for this reason that longer-dated gilt yields have fallen further than shorter-dated ones, with the 20-year yield dropping around 17 basis points (bps) since the start of last week, while the 5-year has only fallen about 10bps.
“It’s a far cry from this time last year, when gilt yields were spiking upwards to highs not seen since before the financial crisis,” Cook added.
The issues then were concerns around the affordability of future government spending, low growth and higher inflation. The 10-year gilt yield touched 4.8% 12 months ago. It’s down to around 4.37%.
“US Treasuries were also spiking this time last year, which added to the move in the UK. That’s not the case today, with US Treasury yields broadly unmoved since the new year – highlighting that the shift in gilt yields is very much UK specific,” said Cook.
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