The new normal in the UK government bond market

The new normal in the UK government bond market

KPMG research examines the outlook for bond yields and how the market is likely to respond to the necessity of increased borrowing required to meet ambitious goals to ‘level up’ the regions of the UK.

Yael Selfin - Chief Economist at KPMG in the UK.

Chief Economist

KPMG in the UK


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  • The Government’s intention to “level up” UK economic activity across different regions requires a sustained and significant commitment to public sector investment, some of which we expect to be financed via fresh bond issues during the 2020/2021 fiscal year. The plans are ambitious and include projects across areas such as communications, energy, climate change and construction
  • We envisage a moderate increase in 10-year government bond yields during the next five years, to 1.9 percent by the end of 2024; this reflects an increased supply of bonds following the fiscal stimulus and market adjustments concerning expectations on further monetary easing. 
  • Bond issuance will gradually become an important driver of the fixed income market again as the Bank of England reiterates the limits of monetary policy, the economy slowly recovers and market participants question the need (and effectiveness) to keep rates low indefinitely.
  • The adjustment will be heralded by the limited proportion of gilt investors who do not need to hold gilts and can trade in and out of the asset class (hedge funds from G7 countries, for example). 
  • We do not envisage material issues placing the extra gilts in the market but there will be a need for more auctions (and thus, more opportunities for demand to dwindle).
  • There is a greater incentive to focus on the demand coming from structural investors, who seem to favour index-linked bonds and medium-duration conventional bonds, there is also huge appetite for green bonds.

Read the full report - The new normal in the UK government bond market

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