UK & Global Sovereigns

10-year government bonds UK Gilts (GBP), German Bunds (EUR), and US T-bonds (USD)

Sovereign CDS spreads 5-year sovereign CDS spreads return to pre COVID-19 levels

UK & Global Sovereigns - Market observation per 21 May 2021 -

GDP growth and rising inflation mark a significant UK economic rebound in Q2 following the easing of pandemic measures

  • European sovereign bond yields rose in early May, while UK and US yields remained mostly stable following recent peaks in late March.
  • UK 10-year yields approach 1% while German 10-year yields approach 0%, each reaching the highest levels in 1.5 years.
  • The gap between UK, and US and German 10-year yields reached peak levels since before the COVID pandemic in early April. This gap between UK peer 10-year yields of 1.1% and 0.9%, for Germany and the US respectively, has now narrowed to 0.95% and 0.8%.
  • UK CPI inflation rates more than doubled from 0.7% in March to 1.5% in April following the easing of pandemic restrictions. The inflation increase is driven by the housing, consumer goods, and energy sectors.
  • UK GDP is expected to rise significantly in Q2 by around 4.25%, while still remaining about 5% below pre-pandemic levels.
  • The existing £895b Bank of England (BoE) bond purchase programme is set to continue as of the May Monetary Policy Committee (MPC), while a slowdown in purchases will depend on longer-term sustainable recovery.

GDP growth and rising inflation mark a significant UK economic rebound in Q2 following the easing of pandemic measures

  • The UK and US credit default swaps (CDS) continue to fall sharply since January ’21, reaching levels significantly lower than the pre pandemic market.
  • Comparatively, German CDS spreads remain stable just above pre COVID-19 level.