The UK 10-year gilt yield declined to 5.23% on Wednesday, mirroring a fall in US Treasury yields after the Democrats secured a clean sweep in the US midterm elections. A Democratic takeover of the House is expected to lower the chances of additional deficit-expanding measures under the Trump administration, easing concerns over rising federal borrowing.
At the same time, investors are positioning for a likely resumption of monetary tightening by the Bank of England on Thursday, with markets broadly expecting the first interest rate increase since 2023. Inflationary pressures linked to the Iran war, together with the continued resilience of the UK economy, have reinforced the rationale for higher borrowing costs. Even so, policymakers are expected to temper market expectations for multiple additional rate hikes next year.
