(Bloomberg) -- The yield on UK inflation-linked benchmark bonds hit 1% for the first time in two years, as speculation mounts that Donald Trump’s policies in the US will provide a boost to global economic growth.
Also known as real yields, the 10-year rate rose as much as four basis points to 1.01% on Thursday, the highest since former prime minister Liz Truss’s expansionary budget in October 2022. They’re seen as a proxy for economic growth prospects because they measure the return bond investors get after inflation is taken into account.
The recent rise in the UK is part of a broader repricing led by US Treasury yields this month, which jumped on the expectation Trump’s potential tax cuts and expansionary fiscal policy will boost economic activity. The moves have been accentuated by the view that Britain’s services-driven economy may be less affected by possible US trade tariffs than the euro area.
“There is a whisper in financial markets that Trump may favor the UK over Europe,” said Kathleen Brooks, a research director at XTB. “If so, this could protect growth, and justifies UK yields rising at a faster pace than European yields.”
The UK’s 10-year real yield rose 12 basis points this month, in line with a 15-basis-point jump in the equivalent US rate to 2.10%. Germany’s 10-year real yield fell this month, as the impact of Trump’s policies could lead to sharper interest-rate cuts from the European Central Bank.
The last time the UK real yield was this high was in 2022, when forced selling from pension funds sent rates soaring across the board. Defined-benefit pension funds have historically sought inflation-linked debt to match their liabilities.
--With assistance from James Hirai.
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