Monthly Bond Commentary - November 2025

November delivered the second, and much delayed, Labour government budget in the UK. After a series of errors, both forced and unforced, markets were apprehensive of what Rachel Reeves might announce in what was a shambolic period of leaks before the event. However, markets are placated for the time being with the spread of 10-year UK Gilts over US Treasury's stabilising close to 45bps; despite a historic precedent of trading on lower yields prior to interest rate rises post pandemic. While the immediate reaction has been neutral, longer-term momentum is reliant on growth and productivity gains which are far from guaranteed and failure to deliver could prove costly both economically and politically.

Credit meanwhile, including in sterling credit, has performed significantly better than sovereign counterparts this year and we anticipate another strong year for corporate bonds in 2026. Balance sheets are healthy and despite some noise from weaker issuers in the private markets we believe that the majority of borrowers are well positioned and financial conditions are accommodative. Year to date issuance of US investment grade and high yield bonds is up 10% and 12%, respectively, compared to last year. Some sectors have challenges ahead, such as autos and chemicals, and we have eliminated exposure to these areas.

With Trump set to announce his proposal for the new Federal Reserve Chair shortly we should expect more dovish monetary policy, which may prove to be a boon for bond investors as interest rates are cut. We will watch closely for any signs of a reacceleration in inflation which could pick up as interest rates are lowered.