Bond Traders Snap Up Oversold UK Gilts Amid Sharp Reversal in Market Sentiment

A wave of buying has swept through UK gilts following a sharp selloff that drove the UK 10-year benchmark yield to 4.87% on March 10, its highest level since February 15. This surge in selling, triggered by renewed concerns over fiscal tightening and inflation persistence, pushed the gilt price down to levels not seen since early February. In response, institutional bond traders have initiated large-scale purchases, targeting long-dated gilts with maturities beyond 2030. The reversal reflects a tactical shift from risk-averse positioning to opportunistic accumulation. According to observed trading flows, over £1.2 billion in UK government bonds changed hands in two days, with a disproportionate share concentrated in the 30-year and 40-year segments. These positions are being built at yields that now offer a 4.75% to 4.90% yield range—significantly above the 4.40% average seen in late February—making them attractive on a relative value basis. The rally in gilts is also affecting broader European markets. German 10-year Bund yields, which had moved in tandem with UK gilts, reversed course, dropping 8 basis points to 2.63%. The GBPEUR exchange rate strengthened marginally, rising 0.4% to 1.1620 as the gilt recovery boosted demand for sterling-denominated assets. This cross-market spillover suggests that the UK’s fixed income rebound is being interpreted as a sign of stabilizing macro sentiment. The activity underscores growing confidence that the recent spike in UK yields may have been overdone, particularly as inflation data from the UK’s latest CPI release showed a slight moderation in core services inflation. Market participants now anticipate a pause in Bank of England rate hikes, potentially setting the stage for yield compression in the coming weeks.