AI’s biggest names are quickly becoming some of the largest and longest-dated issuers in investment grade credit. We believe this borrowing boom raises new risks for the passive portfolios that track bond indices, while creating opportunities for those with an active edge.
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Article last updated 29 October 2026.
The Budget on 28 October was an important test of whether Chancellor John Healey could balance the government's spending ambitions with sustainable public finances.
On that score, his Budget delivered, with fiscal discipline and commitment to the government’s fiscal rules at its core.
The government is maintaining around £15 billion in fiscal headroom, while targeting net debt below 83% of GDP. It’s also bringing in measures intended to alleviate higher energy costs, while cutting business rates and cracking down on VAT loopholes on online sales. The Chancellor announced the corporation tax surcharge on UK banks would rise from 3% to 6%. As bank bond investors, we were relieved as this was less than the 8% worst-case estimate.
For gilt investors, the individual measures mattered less than whether the fiscal arithmetic overall stayed credible (which it did) and didn’t materially ramp up the government’s borrowing (which it didn’t).
Gilts rallied ahead of Budget day and were broadly unchanged going into the Chancellor’s speech, suggesting expectations of fiscal restraint were already in the price. The fact those expectations weren’t upended is important: gilt investors have proved highly sensitive to hints that the government might be planning to borrow more and the prospect of having to absorb more long-dated gilt issuance as a result.
Attention soon shifted from the speechifying to the numbers behind it, most notably the revised Debt Management Office (DMO) gilt remit published soon after the Budget announcement.
Less at the long end
The long end gets a helping hand
The remit points firmly in a supportive direction, with a meaningful shift in gilt issuance away from the long end.
In short, gilt investors are being asked to absorb materially less duration, with extra issuance concentrated in the short and medium parts of the curve. Moreover, the DMO announcement follows Bank of England (BoE) plans to scale back quantitative tightening (QT) by cutting the pace of active gilt sales, pausing some actions and holding some £120bn of its longest-dated gilts to maturity. Fewer new long gilts and less BoE selling is a potentially powerful combination.
All else being equal, this should support longer-dated gilts, creating a strong technical case for a long-end rally and a flatter yield curve. That said, the supply outlook clearly isn’t the only force at work: inflation, energy costs and geopolitical considerations will all continue to influence the overall level and direction of gilt yields
