PIMCO, Fidelity stick with U.K. gilt bets after market turmoil

Pacific Investment Management Co., Franklin Templeton and Fidelity International are among investors sticking to their bets on U.K. government bonds after this week’s slump, with some looking to buy more.

PIMCO, the world’s biggest bond investor, said it continues to take a positive view of U.K. debt, while Fidelity portfolio manager Mike Riddell said the retreat appeared to be driven by hedge funds rather than by traditional asset managers. Goldman Sachs Asset Management sees opportunities emerging in short-dated gilts.

“We haven’t changed our gilts positions in this selloff,” Fidelity’s Riddell said. While it was easy to blame the UK government, “it is mainly a global fixed-income story,” he said. “We have a small long in gilts, with room to add if things blow up any more.”

Market sentiment toward the U.K. is brittle and optimism after Labour’s election win has dimmed amid flatlining growth, sticky inflation and a poorly received budget. While the declines this week came amid broader global concern about Donald Trump’s tariff threats, swelling debts and inflation, the milestones for UK assets were brutal nonetheless.

The yield on 30-year debt hit the highest since 1998 and the pound sank to a one-year low, evoking memories of the meltdown during Liz Truss’s short-lived tenure in 2022. The Treasury was forced to issue a statement insisting it had an “iron grip” on the country’s finances.

But some of the world’s biggest investors and banks downplayed the moves.

Viewed over recent months, they said, the rise in U.K. yields is correlated with that of other countries grappling with the familiar challenges of persistent price growth and record bond issuance. Stumbling economic expansion means more interest-rate cuts are only a matter of time, which will put a floor under the gilt market, they said.

“Given the yield levels, I think it’s very attractive compared to other developed markets,” said David Zahn, head of European fixed income at Franklin Templeton. If anything, the Bank of England will deliver more easing because higher yields will “choke the economy off,” he said.

PIMCO economist Peder Beck-Friis also suggested BOE rate cuts will be more aggressive than markets are currently expecting and said the firm had liked gilts “for a while.” Swaps pricing shows traders see fewer than 50 basis points of cuts through this year.

“I think it is a trade where you need to be patient,” he said in an interview with Bloomberg TV. “Fast-forward a few quarters, a year, I think it is easier to think of scenarios in which gilt yields are lower.”

Fund flows tracked by BNY — the world’s largest custodian bank — backed up investors’ willingness to look through the latest volatility. While institutional investors have been offloading more gilts in the early part of 2025, they remain well within selling ranges seen last year, the data showed.