Vanguard Buys UK Government Bonds

By Harry Robertson

LONDON (Reuters) – The world's second-biggest asset manager, Vanguard, announced on Friday that it purchased UK government bonds following the new Labour government's budget, taking advantage of a significant drop in prices.

Vanguard stated it is adjusting its position from 'underweight' gilts to 'neutral,' indicating its belief that the sell-off in bond prices is unlikely to continue much further. Ales Koutny, head of international rates at Vanguard, mentioned, "We are in the process of covering our gilts underweight across our whole global active franchise."

Vanguard manages an impressive $10 trillion in total, with approximately $1.8 trillion in active portfolios across various asset classes. Koutny added, "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."

In the budget presented by UK finance minister Rachel Reeves, taxes were increased while government spending was boosted, prompting investors to lower their expectations for Bank of England rate cuts. This led to a spike in bond yields and a decline in prices.

Following the budget announcement, Britain's 10-year government bond yield increased by around 20 basis points, but was down about 2 basis points on Friday to roughly 4.43%, aided by a worldwide decrease in yields due to weaker-than-expected U.S. economic data. Remember that yields move inversely to prices.