New on Bondsupermart Live – UK government bonds (Gilts) with yields of over 4%!

• Gilt yields have risen above 4% across much of the curve, improving their appeal as defensive income assets.
• UK growth is softening, and labour-market slack is building, but inflation remains the key uncertainty for the BOE. We expect the BOE to prioritise fighting inflation, and consequently hike rates in 2026.
• Fiscal conditions remain manageable, though debt levels are high and medium-term consolidation plans still require credibility.
• Short- to medium-tenor Gilts offer the strongest risk-reward across the curve. Check out the four newly-onboarded Gilts, with tenors ranging from 0.9 to 8.9 years!

UK Government bonds (Gilts) are firmly back in the spotlight. In the wake of the escalating US-Iran conflict, yields have moved higher across the curve (Chart 1) as investors reprice inflation risks and interest rate expectations. This marks a notable shift in market dynamics, as Gilts now offer even higher income alongside their traditional role as a portfolio anchor.

Against this backdrop, the opportunity set within Gilts is evolving quickly. We assess the investment case for Gilts, unpack recent market movements, and highlight a selection of newly onboarded bonds available on Bondsupermart Live.

Chart 1: Gilt yields shifted higher in March and April

Inflation remains the key uncertainty for BOE

The UK macro picture is softening, but not yet pointing toward an outright recession. Growth has remained positive in recent quarters and is expected to stay muted rather than contract sharply. For instance, real GDP rose 1.0% y/y in 4Q25, with consensus forecasts point to growth of around 0.9% - 1.3% in the next two years (Chart 2). Meanwhile, labour market conditions are easing: unemployment was 5.2% in January 2026 (Jan 2025: 4.4%), while average employee earnings growth was 3.9% y/y (Jan 2025: 5.8%). Together, these suggest increasing slack in the labour market, but not a severe downturn.

Inflation remains the central uncertainty for the UK and the Bank of England (BOE). Headline CPI inflation was already sticky before the US-Iran conflict, coming in at 3.0% in January, and remaining at or above 3% for the 11th consecutive month (Chart 3). The BOE has since explicitly warned that the Middle East conflict could push near-term CPI higher, especially if elevated energy prices begin feeding into wages and other domestic price pressures as well.

This leaves the BOE in a difficult position with its dual mandate. In our view, inflation is likely to be the dominant consideration, especially if disruption in the Middle East persists. Hence, while markets are pricing in rate holds (Chart 4), we think the BOE could still hike in 2026 so long as this disruption stays in place.

Chart 2: GDP growth remains positive, but muted

Chart 3: UK CPI inflation was already sticky (~3%) prior to US-Iran conflict

Chart 4: BOE policy rate expectations have shifted up significantly

Fiscal outlook stable, but medium-term consolidation remains in focus

(Note: PSNB [public sector net borrowing] refers to the required amount of borrowing [receipts – expenditures] in each time period, while PSND [public sector net debt] refers to the stock of debt accumulated.)

UK’s fiscal story remains manageable despite ongoing pressures. In its latest report in March 2026, the Office for Budget Responsibility (OBR) expects yearly borrowing (PSNB) to drop gradually from £153b (5.2% of GDP) in 2024-25, to £133b (4.3% of GDP) in 2025-26, ending in £59b (1.6% of GDP) in 2030-31.

Debt levels, however, are expected to keep rising for several years before falling. UK’s debt, or PSND, is already elevated at 93.2% of GDP in 2024-25, and is projected to rise further to 96.3% in 2028-29 before easing modestly to 95.1% only in 2030-31. This level remains high by UK historical standards, with PSND typically closer to 30% in the early 2000s. Hence, while the debt outlook is not pointing toward an immediate fiscal crisis, it does imply that the UK remains exposed to changes in debt servicing costs and market sentiment than it was in the past.

Part of the reason PSND is expected to rise in the near term, is that fiscal tightening is backloaded. In particular, public spending is expected to increase for a few more years, peaking around 2027-28, before declining after. This means that the forecast improvement in PSND depends not only on stronger receipts, but on the government following through on medium-term fiscal consolidation plans. With the next general election due by August 2029 at the latest, markets will likely remain focused on whether that tightening is actually delivered.

Overall, the fiscal outlook remains manageable for now, but credibility around future consolidation will remain an important driver of longer-dated Gilt valuations.

Chart 5: Debt levels (% of GDP) are only expected to drop from 2029-30 onward

Supply factors to support Gilts yields

In 2026–27, the Debt Management Office (DMO) shifted Gilt issuance somewhat toward short and medium maturities relative to 2025–26 (Chart 6). This reflects where investor demand currently appears more dependable, as well as the lower term-premium sensitivity of those parts of the curve. We note that planned issuance is still expected to decline in absolute terms (£) across the main tenor buckets, though the tilt toward shorter and  intermediate maturities should support yields there.

Quantitative tightening (QT) remains an important additional part of the supply picture. The Bank of England is still reducing its gilt holdings by £70 billion over the current QT year through a combination of active sales and natural run-off from maturing bonds. Importantly, the BOE now appears to be placing relatively more of its active sales in the short and medium sectors, while relying more on run-off at the long end.

Taken together, the DMO’s adjusted issuance profile and ongoing QT could both help keep supply, and therefore yield levels, supported. In other words, the supply backdrop is not worsening materially, but nor is it turning outright supportive for lower yields.

Chart 6: Expected issuances this year (2026-27) still expected to be primarily in short-medium tenors

Which developed market sovereign offers the highest yield?

UK Gilts yields remain higher than some of its developed market counterparts (Table 1). This includes Germany (higher rated) and France (lower rated) which are its European peers, as well as US and Singapore.

This is partly a function of higher policy rates set by the BOE (3.75%), compared to the ECB (deposit facility: 2.00%) and Fed (3.50% - 3.75%), as well as rate hike expectations already priced into the market. For investors focused on carry and sovereign credit quality, and are comfortable with currency risks, this yield pickup may present an interesting proposition.

Table 1: Yield comparison vs DM peers

Gilts now offer much more interesting yields today

UK Gilts yields have moved back above 4% across much of the curve. This may appeal to investors seeking high-quality sovereign income, especially relative to other sovereign bonds (in different currencies) where yields are lower. While the UK fiscal backdrop remains dependent on future budgetary plans, investors are now being paid more meaningfully for taking on these risks.

Against this backdrop, we think the strongest risk-reward proposition lies in the short-medium tenor space. Relative to long-tenor Gilts, these would be less vulnerable to fiscal uncertainty and consequently shifts in term premia; furthermore, these would also have lesser duration exposure and hence mark-to-market volatility.

We include some bonds below (Table 2), which can offer investors a defensive income opportunity! There is a good mix of tenors below, ranging from shorter tenors (0.8, 1.9 years) to longer tenors (5.3, 8.9 years).

Table 2: Newly onboarded Gilts on Bondsupermart Live

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds positions in UKT 4.125% 29Jan2027 Govt (GBP), UKT 4.375% 07Mar2028 Govt (GBP), UKT 0.250% 31Jul2031 Govt (GBP), and UKT 4.500% 07Mar2035 Govt (GBP). The analyst who produced this report hold NIL positions in the abovementioned securities. This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.