The UK fixed-income market delivered fresh drama last week after AXA Investment Managers unexpectedly halved its exposure to UK government bonds. The move came immediately after the government reversed expectations and confirmed no income tax increase, sending borrowing costs surging and rattling investor confidence ahead of the next budget.
For AXA’s senior portfolio manager Nicolas Trindade, the tax U-turn fundamentally changed the risk profile. Once overweight gilts, he shifted to a neutral stance, signalling that the path to fiscal credibility may be “a lot less convincing than initially assumed.” Without additional tax revenue, Trindade now believes the government’s fiscal buffer sits closer to £15 billion—well below the £20 billion margin many large bondholders argued is necessary to keep the fiscal framework intact.
Yet while AXA steps back, other heavyweight managers see the volatility as an opportunity rather than a warning sign.
Royal London Asset Management, Allianz Global Investors, and Fidelity International all reaffirmed their conviction in UK gilts, pointing to:
🔹 Easing inflation pressures
🔹 Expected Bank of England rate cuts
🔹 Attractive relative value vs. other developed markets
Royal London’s Ben Nicholl even bought 5-year and 30-year gilts during Friday’s selloff, calling short-dated UK bonds particularly compelling if the BoE cuts faster than currently priced in.
At Allianz Global Investors, portfolio manager Ranjiv Mann continues to favour gilts over U.S. Treasuries despite trimming exposure earlier in November, noting that markets will ultimately “apply discipline on the government” to ensure a credible fiscal stance.
This divergence in strategy highlights a critical moment for UK markets:
✔ Policy credibility is under scrutiny.
✔ Volatility is rising.
✔ But long-term fundamentals may be strengthening in the background.
As inflation cools and the monetary cycle turns, gilts could remain one of the most closely watched—and potentially mispriced—opportunities in global fixed income.