After a volatile 2025, gilt markets have begun 2026 on the front foot. Yields across all maturities are now at their lowest since 2024, and Hargreaves Lansdown’s Hal Cook says easing inflation and government plans to issue fewer long-dated gilts are reversing last year’s dramatic spike.
Hal Cook, senior investment analyst, Hargreaves Lansdown:
“How did you start your New Year? If you rang in 2026 with a ‘big drop’, did you predict UK government bond yields would be doing the same? Bear with me. So far, 2026 has seen gilt yields fall. Most of the move was last week, but they fell a little further on Monday following relative UK strength compared to the US where Fed Chair Jerome Powell is – yet again – under attack from the White House. Gilt yields are lower now than at any time throughout 2025.
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 2026. 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. The government wants to reduce the amount of long-dated gilts being issued in future, in favour of issuing shorter-dated paper. The increased flexibility that comes with issuing shorter-dated paper, particularly when there are concerns around longer-term debt affordability, are 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).
It’s for this reason that longer-dated gilt yields have fallen further than shorter-dated ones, with the 20-year yield dropping around 17bps 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. 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% at the time of writing.
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.”
