“The combination of renewed political risks and the energy price shock has proved toxic for UK gilts. Starting with the energy shock, since the start of the Iran war, gilt yields have displayed a higher sensitivity to oil price moves than their developed market peers,” Borges said in a note.

On the political landscape, Borges highlighted that prediction markets attribute a roughly 70 per cent chance of UK Prime Minister Keir Starmer leaving office by year end. Traditionally, fixed income investors do not love political instability, since it widens the range of fiscal paths. However, Borges thinks that the Liz Truss episode is fresh in the collective memory of the UK political class, limiting the scope for adventurous fiscal programmes. Away from these near-term developments, he believes that the fiscal and issuance outlook for the UK government market is quite favourable relative to other advanced economies. Against this backdrop, Borges thinks intermediate UK gilts appear attractive.

“UK gilts are reasserting their role as a core allocation for clients navigating an uncertain macroeconomic backdrop,” Dennis Pellerito, head of Wholesale, Fidelity International, added. “This fund combines the defensive qualities of government bonds with the strength of Fidelity’s active fixed income capabilities, leveraging our global platform to identify opportunities across the market.”

“The UK gilt market is entering a more dynamic phase. Elevated yields, shifting rate expectations and ongoing macro uncertainty are creating pricing inefficiencies across the curve,” Riddell said. “At the same time, supply dynamics – including a reduction in long-end issuance – may provide additional technical support to the asset class. This environment is well suited to an active approach, where we can selectively express views on duration, inflation and relative value to generate consistent excess returns for investors.”

Other investment managers such as Rathbones Asset Management are also positive about the UK’s gilt market in 2026. See here.