Asset manager Vanguard buys gilts after budget-driven sell-off

By Harry Robertson

LONDON (Reuters) – The world’s second-biggest asset manager Vanguard said on Friday it had bought UK government bonds in the wake of the new Labour government’s budget, taking advantage of a sharp fall in prices.

Vanguard said it was moving from ‘underweight’ gilts – compared to the benchmarks against which it gauges its performance – to ‘neutral’ in a sign it thinks the sell-off is unlikely to run much further.

“We are in the process of covering our gilts underweight across our whole global active franchise,” Ales Koutny, head of international rates at Vanguard, told Reuters on Friday.

Vanguard manages $10 trillion overall and around $1.8 trillion in active portfolios across asset classes.

“We think the budget is a significant fiscal loosening. At the same time, gilts have now repriced, and we are taking advantage of those moves.”

UK finance minister Rachel Reeves raised taxes but also ramped up spending in her budget on Wednesday, leading investors to reduce their expectations of Bank of England rate cuts and causing bond yields to spike and prices to tumble.

Britain’s 10-year government bond yield has risen around 20 basis points since the budget, but was down around 2 bps on Friday around 4.43%, helped by a drop in yields around the world, following weaker-than-expected U.S. economic data. Yields move inversely to prices.