UK Gilts and the Bank of England — 2026-09-28
Fresh gilt market developments this week centre on a global bond sell-off driving UK yields higher, with the Bank of England deputy governor flagging a UK rate rise as "increasingly likely" owing to energy-price risks. London banks are profiting from cheap BoE repo cash to fund gilt purchases, while attention shifts to the pre-Budget fiscal landscape ahead of John Healey's October statement. Sterling trades near its June low as the Fed's tightening pace outruns the BoE.
UK Gilts and the Bank of England — 2026-09-28
Top developments
BoE deputy governor: UK rate rise 'increasingly likely'
On 24 September, a global bond sell-off pushed US 30-year yields to their highest since 2004, dragging UK borrowing costs higher. The Bank of England's deputy governor cited risks from high energy prices, saying a UK interest rate rise is "increasingly likely" as inflation fears hit bonds. The news adds pressure to gilt markets already wrestling with the fiscal backdrop ahead of the October Budget.
Banks cash in on BoE repo-gilt carry trade
London banks are tapping the Bank of England's short-term repo facility to fund gilt purchases, capturing roughly 1.6 percentage points of carry as 10-year gilt yields outpace the 3.75% policy rate. Repo usage has hit £129 billion, illustrating how cheap central bank cash is amplifying demand for gilts even as yields stay elevated.
DMO to auction £4.25bn of 2036 gilts
The UK Debt Management Office is set to auction £4.25 billion of gilts maturing in 2036, part of the ongoing auction-based issuance programme for 2026-27. Auctions remain the government's primary issuance method, supplemented by syndications and gilt tenders under the Debt Management Report 2026-27 remit.
BofA sees two more BoE hikes to 4.25%
Bank of America forecasts the Bank of England will raise rates twice — in November and February — to 4.25%, citing inflation at 3.1% and rising energy costs from the September MPC minutes. This sits against market expectations of Fed tightening that continues to outrun the BoE, pushing GBP/USD near its June low.
Local view
Continent-based commentary centres on the BoE's new QT plan: German outlet aktien.news reported the BoE scrapping long-term gilt sales to 2034, noting yields "fell markedly" in response. Germany's IDNFinancials highlighted that the BoE will hold £488 billion of gilts until 2034 rather than selling them. French-language analysis from Lombard Odier (via investir.ch) examined why gilts are so rate-sensitive. The French Treasury's Westminster & City News bulletin continues weekly monitoring of UK financial policy.
Context & numbers
- Bank Rate: maintained at 3.75% (6–3 MPC vote, three members preferred 4.00%); APF stock down from £895bn peak (Feb 2022) to £488bn (Sep 2026), with £70bn reduced over the past 12 months, £21bn via gilt sales.
- BoE short-term repo usage: £129 billion; ~1.6ppt carry for banks funding gilts.
- Fiscal pressure: 30-year gilt yields touched 28-year highs this month, with the successful £4.25bn 30-year syndication at a record yield of 5.8168% drawing over £87bn of orders in early September.
- The OBR will deliver a single private pre-measures forecast to the Treasury to streamline the Budget process.
On the radar
- October Budget: Chancellor John Healey due to deliver the Burnham government's first budget at the end of October, with rising borrowing costs threatening to halve headroom against fiscal rules.
- 30-year gilt (2036) auction of £4.25bn expected this week — watch bid-to-cover and tail.
- Berenberg argues credible fiscal tightening at the October Budget could decouple gilts from sterling and open the way for lower rates.
- Oil prices rising on US-Iran peace-talk stalemate keep energy-driven inflation risks, a key BoE concern, in focus.
This content was collected, curated, and summarized entirely by AI — including how and what to gather. It may contain inaccuracies. Crew does not guarantee the accuracy of any information presented here. Always verify facts on your own before acting on them. Crew assumes no legal liability for any consequences arising from reliance on this content.
Powered by
