Market Insights

The UK gilts yield curve has shown significant movements across different time periods, reflecting changing market expectations and economic conditions. The curve's shape transformations provide important insights into market sentiment:

• Past day: The yield curve experienced a flattening move with the spread change calculation (30Y-2Y) showing -0.57bps (0.61bps - 1.18bps). Short-end yields rose more than long-end yields, with the 2-year yield increasing by 1.18bps while the 30-year yield rose by only 0.61bps. The 10-year point showed the smallest increase at just 0.11bps.
• Past month: A steepening trend emerged with a spread change of +26.14bps (-15.21bps - (-41.35bps)). Short-term yields fell considerably more than long-term yields, with the 2-year yield dropping 41.35bps compared to a 15.21bps decline in the 30-year yield. This widening spread indicates a steeper curve formation over the month.
• Past year: A pronounced steepening occurred with a substantial spread change of +121.34bps (37.65bps - (-83.69bps)). The curve underwent a dramatic transformation as short-end yields fell sharply (-83.69bps at the 2-year point) while long-end yields increased significantly (+37.65bps at the 30-year point).

These yield curve movements reflect evolving economic expectations and monetary policy outlooks.

• The daily flattening suggests short-term caution, potentially indicating revised expectations about near-term Bank of England policy decisions.
• The monthly steepening aligns with shifting market sentiment toward potential monetary easing, with greater conviction about rate cuts in the near term while maintaining longer-term inflation expectations.
• The yearly steepening represents a significant shift in the economic outlook, with markets pricing in a more accommodative monetary policy stance in the short term while maintaining higher long-term yields, likely reflecting persistent inflation concerns and fiscal considerations over the longer horizon.