HSBC: the yield is attractive but difficult to get started, UK government bonds are too volatile!

HSBC Chief Multi-Asset Strategist Max Kettner accurately summarized the current dilemma facing the UK gilt market - the high yields are tempting, but the ever-changing political storms make any medium to long-term judgment seem futile, with market volatility remaining high. Kettner said, "I really want to buy these bonds because the long-term yield is obviously very attractive on paper. But currently, the trading cycle for UK gilts is half an hour." On Wednesday, the UK gilt market temporarily stabilized after experiencing two consecutive days of intense selling. The UK 10-year gilt yield remained stable near 5.08% on the day, touching 5.135% at one point, the highest level since June 2008. The 30-year gilt yield slightly rose by 1 basis point to 5.77%, just a step away from the near 30-year peak of 5.814% reached on Tuesday. However, the surface calm cannot conceal the deep structural fissures. In the two previous trading days, UK gilt yields had surged nearly 20 basis points, with the 30-year yield jumping about 20 basis points in two days, bringing the 6% psychological barrier into view. Since the beginning of the year, the UK 10-year gilt yield has risen by about 64 basis points, more than double the increase seen in US and German bond yields during the same period. Among the major developed economies, the UK's 10-year borrowing cost of 5.12% ranks at the top - in comparison, the US, with a stronger economic growth, is at 4.45%, and Germany, known for stricter fiscal discipline, is at 3.10%. The UK is paying a higher "credit premium" for its dual vulnerability in politics and economics. "The Perfect Storm" This is not just a numbers game. In the eyes of bond market participants, the UK is experiencing a "perfect storm" woven from geopolitical conflict, inflation anxiety, and political turmoil - and the core of this storm, precisely hits the "pricing anchor" logic that is the foundation of the modern financial system. The Pricing Challenge of Political Premium The direct trigger for the recent volatility in UK gilt yields was the "historic defeat" suffered by the Labour government in local elections. In the English local elections held on May 7, the Labour Party won only 1,063 seats, a sharp decrease of 1,486 seats from the previous election, losing control of several key local councils and large traditional strongholds. The Reform Party emerged as the biggest winner with 1,453 seats, and the Green Party also won 577 seats. Following the announcement of the election results, the internal pressure within the Labour Party quickly spread from the political sphere to market pricing. As of May 12, more than 80 Labour MPs had publicly called for Starm... The content has been truncated. To read the full article, please visit: https://e.tc/aAGLJUax