Hayes, Head of Total Return & Fixed Income Allocation, says an excessive focus on elevated ultra long-term gilt yields has unnecessarily dragged down sentiment in a market that has outperformed a number of other major countries in 2025.
“There remains this sense that gilts are incredibly challenged and stuck in a doom loop with 30-year bond yields moving higher and causing UK borrowing costs to rise,” he says. “But that overlooks the global context where other countries like the US and Japan have also experienced volatility at the long end. Look across the curve and the UK is not doing too badly at all compared to many other countries, particularly in Europe.”
Recently 30-year gilt yields hit the headlines after exceeding a 27-year high of more than 5.7%. While long gilt yields have since fallen back, Hayes says the fact they remain elevated should not particularly concern investors.
“Long dated bonds are a very volatile instrument that go up and down significantly as they are longer duration,” he says. “The 30-year gilt is not the most important bond out there – mortgages aren’t priced off them, nor does the government have to issue them. The Debt Management Office can just issue shorter-dated bonds like 10-year gilts, which it has done recently and seen very strong demand.”
Hayes believes the focus on long-dated gilts overshadows the fact that bond returns have been respectable even absent a bull market as inflation has remained sticky and central banks have been cautious in easing monetary policy.
“There’s lots of negative drama around the bond market but, in this quite volatile world, it's just churning out reasonable returns without aggressive central bank policy acting as a tailwind,” he says. “It's not the worst environment for bond investors even if it’s not super positive.”
Hayes argues that fears over tight credit spreads, a recurring concern among investors, should also be balanced against the potential for credit to remain expensive.
“Credit spreads are outperforming people's very low expectations and they're getting tighter and tighter - they are slightly defying gravity,” he says. “But we’re in this sweet spot where the data is weak but not weak enough to push us into recession and more rate cuts are going to come, which will be supportive for risk assets. When spreads do widen, we immediately see buyers, so the demand side is pretty strong – investors seem happy with the all-in yields of corporate bonds.”
Moreover, he says new bond issuance is not bringing additional leverage into the system, reassuring those who fear the market could buckle under increasing risk.
“There's a healthy pipeline of credit and high yield but this is not 2006 or 2007 where the market was partying like crazy and leverage was high,” he says. “Credit spreads have got tighter but that doesn't mean they're about to go a lot wider. If the economy remains not too bad and the supply-demand dynamic can stay strong, then we could see tight spreads for the foreseeable future. If this is a party, it is a non-alcoholic one.”
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