Rates Spark: Hard to see a ceiling for gilt yields

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.