Rates Spark: Gilts Gaining Confidence
Gilts are the big winner this week in rates, as global bond yields push lower amidst a broader flight to safety, with Gilts leading the way.
Despite this, Gilt yields still seem high, driven by a hawkish Bank of England and a material risk premium.
Gilt swap spreads were more sensitive to French turmoil than to dynamics in US Treasuries or Bunds, but this should change with more budget certainty, according to the Senior European Rates Strategist.
Notably, 10y US Treasury yields dipped below 4% on Thursday, and 2y yields have slid to below 3.4%, falling beneath the levels just after 'Liberation Day', hinting at growing expectations that the Fed might have to take rates below the neutral level.
Author's summary: Gilts lead rates amid global flight to safety.