Gilt Yields Edge Higher, Sterling Falls Ahead of U.K. Budget

By Miriam Mukuru and Renae Dyer

Yields on U.K. government bonds edged higher, while sterling fell slightly as investors awaited the government's budget.

This will be the first budget under Prime Minister Andy Burnham and Treasury chief John Healey. The Debt Management Office's plan for its expected borrowing and cash needs in 2026 and 2027 will be released after the delivery of the budget at 1230 GMT.

Ten-year gilt yields rose 1.2 basis points to trade at 5.354% on Wednesday, Tradeweb data showed. Sterling fell to a 12-day low of $1.3269 in early European trade. Against the euro, sterling's decline was more modest, falling 0.2% to 0.8374 per euro after reaching a 17-month low of 0.8357 overnight.

"Gilt markets are always a bit nervous heading into the autumn budget announcement, and this year is no different," ING senior U.K. and eurozone rates strategist Michiel Tukker said in a note.

However, a moderate budget without any big surprises could cause gilt yields to fall, he said.

Markets expect Healey to announce a modest set of spending plans, small tax rises, and to keep to his pledge to stick within the U.K.'s fiscal rules. Gilts and sterling are expected to react calmly as a result.

"Both the pound and gilts have traded in a calm and orderly fashion ahead of this afternoon's autumn budget, with investors bracing for a smooth-sailing fiscal event, barring any nasty surprises lurking in the small print," said Matthew Ryan, head of market strategy at global financial services firm Ebury in a note.

"All signs point to a cautious budget that leaves the bond vigilantes with little to do," he said.

Nonetheless, fiscal concerns could still linger as investors expect the budget to offer a temporary fix rather than a lasting solution to Britain's fiscal challenges.

"A cautious package could steady the gilt market and ease immediate cost pressures, but it would leave the government's larger ambitions, and the question of how to fund them, for another day," April LaRusse, co-head of global client portfolio management at BNY Investments, said in a note to clients.

Investors remain cautious about any signs of loosening fiscal rules or unfunded spending commitments, LaRusse said.

Ten-year gilt yields hit a 19-year high of 5.527% in early October, according to LSEG data, as geopolitical tensions in the Middle East and mounting inflation concerns weighed on global sovereign bonds.

Sterling meanwhile has performed relatively well recently. This partly reflects expectations for fiscally responsible budget measures along with bets that the Bank of England will raise interest rates in November. A weaker euro due to concerns about French debt has provided additional support.

"Bond markets are busy savaging the French and somewhat staring at the Americans ahead of November's midterms," Caxton foreign exchange analyst David Stritch said in a webinar.

"So we're flying under the radar."

Write to Miriam Mukuru at miriam.mukuru@wsj.com and Renae Dyer at renae.dyer@wsj.com

(END) Dow Jones Newswires

October 28, 2026 07:32 ET (11:32 GMT)