By Harry Robertson
LONDON (Reuters) – Britain’s finance minister Rachel Reeves will deliver the first budget of the new Labour government on Wednesday, two years after then-Prime Minister Liz Truss’ tax-cutting plans sparked a crisis in the bond market.
Bond prices fell last week on reports Reeves would tweak the country’s fiscal rules to allow more borrowing, but several asset managers, including Pictet and abrdn, reckon they could rebound once the full budget details are known.
Here’s what 10 bond fund managers and strategists are saying:
ABRDN’S MATTHEW AMIS
“Overweight UK gilts versus other developed market government bonds.”
“Inflation is well below the Bank of England’s forecasts,” said Amis, who manages the global government bond fund and UK government bond fund. “Despite the negative headlines around the UK budget, we think its bark could be worse than its bite.”
ALLIANZ GLOBAL INVESTORS’ RANJIV MANN
“Long gilts” – a view that prices will rise and yields fall.
“Ultimately, the UK government has little choice but to have a relatively tight fiscal stance in the upcoming budget and maintain policy credibility after the Liz Truss budget debacle in late 2022,” said Mann, senior portfolio manager in core fixed income.
BNP PARIBAS ASSET MANAGEMENT’S CEDRIC SCHOLTES
“The UK is one of our preferred markets.”
“While we anticipate the Chancellor to take advantage of the increased fiscal headroom from a recalibration of policy rules, we think HM Treasury will be mindful that increased borrowing not be excessive and (that it is) focused on financing investment,” said Scholtes, head of global sovereigns, inflation and rates.
LAZARD ASSET MANAGEMENT’S MICHAEL WEIDNER
“A near-neutral stance… will reassess after the budget is released.”
“We believe that the new budget will ultimately signal a robust level of fiscal responsibility,” said Weidner, co-head of global fixed income. “The persistent inflation, particularly in the service sector, and its impact on the BoE’s reaction is our primary concern.”
LEGAL & GENERAL INVESTMENT MANAGEMENT
“Biased to be positive on gilts relative to other G10 markets.”
“We think the data will increasingly reveal that UK economic conditions are not terribly different from elsewhere in the G7,” said Chris Jeffrey, head of macro strategy. “Investors obsessing over fiscal risks with an eye on Oct. 30 are overlooking the economic fundamentals.”