(Bloomberg) — BlackRock Inc.’s research arm upgraded its call on UK government bonds to overweight from neutral, saying the Bank of England will slash interest rates faster than expected by markets.
“We are overweight,” BlackRock strategists including Wei Li wrote in a weekly note. “Gilt yields offer attractive income, and we think the Bank of England will cut rates more than the market is pricing given a soft economy.”
BlackRock is the latest big name to bang the drum in favor of UK bonds in the past week, following similar views from strategists at Goldman Sachs Group Inc. and Legal & General Investment Management. Despite the calls, gilts have continued to lag peers because money markets see the BOE being less aggressive than the Federal Reserve and the European Central Bank.
Recent data has been supporting the positive view by suggesting the UK economy is losing momentum. BOE Governor Andrew Bailey said this month that the central bank, which decided against a rate cut in September, could become a “bit more aggressive” and “a bit more activist” in its approach.
The gilt call by BlackRock, the world’s biggest asset manager, was among its tactical views for the next six- to 12-months. It did not elaborate on how far it expects the UK central bank to bring down borrowing costs.
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The market is pricing in a 90% chance of another quarter-point cut in November, but only 40% for a further reduction in December.
BlackRock expects the ECB to cut rates at its meeting this week, saying the central bank can cut more than the Fed because it tightened policy more. However, it is staying neutral on European government bonds, pointing to political uncertainty as a risk for the region’s fiscal sustainability.
–With assistance from James Hirai.
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