What Rathbones did
Rathbones Asset Management Ltd. leaned into longer-maturity UK government bonds this week. David Coombs, who runs multi-asset investments, said the firm added 10-year gilts and trimmed holdings in the 2- to 5-year bucket, moves rolled out across its £9.6 billion ($12.8 billion) multi-asset range.
Those trades nudged the firm's view on longer-duration bonds to neutral from underweight. These bonds tend to react more to rate shifts and to government policy.
Why the firm moved
"Pre-budget messaging has been more disciplined this time around," Coombs said, contrasting it with "the previous two budgets where we had plenty of leaks." Back in July, he said Rathbones pared gilts to hedge the risk that the then incoming Prime Minister, Andy Burnham, might appoint a chancellor ready to loosen the purse strings. He also feared a reprise of ex-PM Liz Truss's 2022 unfunded tax cuts that sparked a bond rout.
Coombs still has reservations about the government's ability to rein in spending and said, "we are not going overweight."
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Market context and what it means for your portfolio
Chancellor John Healey will deliver the budget on Oct. 28. The bar is set for a low-key package that emphasizes restraint, avoids big giveaways, and brings only a modest lift in gilt supply for the remainder of the financial year.
A calmer approach by Burnham and Healey has allowed the UK to avoid the worst of the global bond selloff - a rare outcome for a market that often bears the brunt during wider pullbacks. Since July 20, the day Burnham assumed office, benchmark UK 10-year yields have climbed about 30 basis points to 5.33%. Long-end UK debt has held up even better: 30-year yields are down three basis points in that window and, at 5.72%, sit at a one-month low.
Coombs said real yields - returns after inflation - near 2% look appealing next to equities. The bottom line: a calmer budget path and firmer real yields are making duration look less daunting, even as some investors stop short of outright overweight bets.
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