UK Curve: Higher and Steeper for Longer

UBS remains cautious on long UK gilt duration due to political and fiscal risks, instead recommending nominal 5s10s yield curve steepeners. They expect the Bank of England to keep rates on hold for the rest of 2026 while gilt yields target 4.75%.

Key Takeaways

• 1.UBS is avoiding long positions in UK 10-year gilts due to persistent political uncertainty and fiscal worries.
• 2.Increased fiscal risks are expected to add 25-50bps of term premium to 10-year yields, supporting a bear steepening of the curve.
• 3.The preferred trade expression is a nominal 5s10s curve steepener, entering at 45bps with a target of 65bps.

Table of Contents

• (Still) not going long UK 10y
• Long nominal 5s10s steepeners at 45bps, target: 65bps and stop: 30bps from higher fiscal risks
• Wider swap spreads from higher fiscal risks but influence of US remains
• Interest Rates
• Valuation Method and Risk Statement
• Required Disclosures
• UBS Global Research Disclaimer

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