Rates Spark: Hard to see a ceiling for gilt yields
At a Glance
Lead — Gilt yields are poised for further increases, driven by both political uncertainties and the Bank of England's ongoing quantitative tightening measures. Per the full note from ing-think, the current trajectory suggests that there is little to suggest a ceiling for these yields in the near term. The desk highlights that the US Treasury market is also under pressure, particularly due to geopolitical tensions affecting oil supply routes, which compounds inflationary pressures. This backdrop sets the stage for a potential shift in bond market dynamics, particularly as inflation data continues to surprise to the upside.
Key Takeaways
- 01Gilt yields have no clear ceiling due to persistent QT and political risks.
- 02US Treasuries face added pressure from inflation and supply chain disruptions.
- 03ING's view is more aggressive than consensus, which sees a ceiling near 4%.
Full Analysis
What the desk is arguing
ING contends that gilt yields can continue to rise, driven not only by UK political risks but also by the Bank of England's ongoing quantitative tightening. This structural selling pressure is unlikely to abate soon, making it difficult to identify a ceiling for yields.
The same dynamic is playing out in US Treasuries, where the 'never-ending shuttering of the Strait' is adding to inflationary concerns. Already high April CPI data is set to rise further, compounding headwinds for core bonds globally.
The desk implicitly rejects the notion that political risks alone are the primary driver. Instead, they emphasize central bank balance sheet runoff as a persistent and independent factor pushing yields higher.
Where it sits in our coverage
Our consensus target for 10-year gilt yields is 4.00% by year-end, with a range of 3.80%-4.30%. ING's view aligns with our bias towards higher yields, though they are more aggressive on the upside, not seeing a ceiling.
Among firms in our coverage, Barclays has a Dec-26 target of 3.85% and JPMorgan targets 3.90%. Both are more conservative than ING. Goldman Sachs targets 4.10%, closer to ING's direction but still below their open-ended view.
How other firms see it
Barclays and JPMorgan are aligned with the higher yield view but see a ceiling around 4%. They emphasize that QT impact will fade over time, contrary to ING's persistence thesis.
Goldman Sachs is more aligned, arguing that inflation and supply pressures will keep yields elevated, but they still see a ceiling near 4.10%. Overall, ING stands out as the most bearish on bonds.
Market Implications
Continued upward pressure on core bond yields, particularly gilts and Treasuries. Risk of further steepening if QT accelerates. Spreads may widen as investors demand higher term premiums.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Neutral | 1.1450 |
Citi | Bearish | 1.1000 |
MUFG | Bullish | 1.1800 |
From the original
Gilt yields can continue to rise, not just because of political risks, but also on the back of the Bank of England's quantitative tightening. Meanwhile, US Treasuries continue to feel pain from the never-ending shuttering of the Strait, with April CPI data already high, and set t
Related speeches
4 itemsRates Spark: Hard to see a ceiling for gilt yields
ING suggests that UK gilt yields face upward pressure with no clear ceiling, driven by persistent inflation, fiscal concerns, and aggressive QT unwind from the BoE. This contrasts with a market that may be underestimating the duration risk premium needed to attract buyers.
Rates: The hidden force pushing gilt yields to record highs
The desk posits that the recent surge in 10Y gilt yields is significantly influenced by the Bank of England's quantitative tightening (QT) alongside inflationary pressures and political uncertainties. Per the full note [source], the steepening of the 2s10s GBP curve by 60 basis points more than its USD counterpart underscores the impact of increased gilt supply. This divergence may continue as market dynamics evolve, particularly in light of potential shifts in monetary policy from the BoE.