Relief rally for UK gilts

Key takeaways

UK government bonds (gilts) made historic gains thanks to assurances from Labour’s top leadership contender. Meanwhile, UK shares quietly outperformed their peers.

Gilts bounce back
Gilt markets breathed a sigh of relief last week. The yields on 10-year gilts retreated from their post-2008 highs of over 5% – meaning their prices gained – while 30-year gilts enjoyed their best week since December 2023.

Although gilt prices responded to last week’s surprisingly low April inflation reading of 2.8% (0.5% down from March), softer employment numbers, and a retreating oil price, they were more influenced by the UK’s political backdrop. Early last week, Labour leadership contender, Andy Burnham, pledged to stick to the UK’s fiscal rules.

The promise from Greater Manchester’s sitting mayor, to stand by the government’s borrowing limits, was sufficient to trigger a relief rally as traders reduced their bets on higher gilt issuance, and higher interest rates from the Bank of England. Even so, gilts still remain ‘in the red’ for 2026.

AI stocks underpin eight weeks of gains for S&P 500 Index
Amid another turbulent week, punctuated by an initial sell-off in US government bonds (Treasuries), whipsawing sentiment as to the Iran conflict, and a 10% decline in oil prices, the S&P 500 Index of US companies snapped back from a three-session losing streak to close the week a little over 1% higher in sterling terms. This marks the eighth consecutive week of gains for the index – it’s longest winning streak since 2023.

So far this year, just five giant US technology stocks Alphabet (Google), Apple, Amazon, Broadcom, and Nvidia have accounted for almost half (46.6%) of the S&P 500’s return of 9.8%, thanks to their exposure to the AI buildout theme. Meanwhile, US chip-making companies have raced away, with the 30-stock Philadelphia Semiconductor (SOX) Index ahead 72% so far this year.

Modest reception for Nvidia’s ‘blowout’ results
Nvidia, presently valued at well over $5trn, delivered another set of astounding figures last week when it brought up the tail end of the first-quarter US earnings season. The company at the epicentre of the AI buildout saw quarterly revenue jump 85% on last year to $81.6bn. This was a significant beat of analysts’ expectations which, remarkably, brought up 15 consecutive quarters when Nvidia has beaten such estimates.

Investors gave the blockbuster results, which accompanied a bumper dividend payment, a lukewarm reception and the share price dipped slightly. Even so, Nvidia has accounted over 12% of this year’s gains in the S&P 500 Index, with its bullish guidance for the remainder of the year underlining that the AI buildout theme has several more years ahead of it.

Market moves

• Global stock markets made modest gains.
• UK shares outperformed with gains of 2.6%. European shares were close behind; they added 2.3%.
• UK government bonds enjoyed a relief rally, US government bonds made more muted progress. The gold price eased just over 1%.

What to look out for this week

• Kevin Warsh took the oath of office and was sworn in as the 17th chair of the Federal Reserve last Friday. Mr Warsh’s first rate-setting meeting is slated for mid-June.

• Today brings US consumer confidence and house price data followed by PCE (personal consumption expenditures) inflation, GDP and consumer spending numbers on Thursday.

• Friday promises flash inflation prints for Japan, Germany, France, Italy and Spain.

Important Information

Handelsbanken Wealth is a trading name of Handelsbanken Wealth & Asset Management Limited which is authorised and regulated by the Financial Conduct Authority (FCA) in the conduct of investment and protection business and is a wholly-owned subsidiary of Handelsbanken plc. For further information on our investment services go to wealthandasset.handelsbanken.co.uk/important-information. Tax advice which does not contain any investment element is not regulated by the FCA. Professional advice should be taken before any course of action is pursued.

• Find out more about our services by contacting us on 01892 701803 or exploring the rest of our website: wealthandasset.handelsbanken.co.uk
• Read about how our investment services are regulated, and other important information: wealthandasset.handelsbanken.co.uk/important-information
• Learn more about wealth and investment concepts in our Learning Zone: wealthandasset.handelsbanken.co.uk/learning-zone/
• Understand more about the language and terminology used in the financial services industry and our own publications through our Glossary of Terms: wealthandasset.handelsbanken.co.uk/glossary-of-terms/

All commentary and data is valid, to the best of our knowledge, at the time of publication. This document is not intended to be a definitive analysis of financial or other markets and does not constitute any recommendation to buy, sell or otherwise trade in any of the investments mentioned. The value of any investment and income from it is not guaranteed and can fall as well as rise, so your capital is at risk.

We manage our investment strategies in accordance with pre-defined risk objectives, which vary depending on the strategy’s risk profile.

Portfolios may include individual investments in structured products, foreign currencies and funds (including funds not regulated by the FCA) which may individually have a relatively high risk profile. The portfolios may specifically include hedge funds, property funds, private equity funds and other funds which may have limited liquidity. Changes in exchange rates between currencies can cause investments of income to go down or up.

This document has been issued by Handelsbanken Wealth. For Handelsbanken Multi Asset Funds, the Authorised Corporate Director is Handelsbanken ACD Limited, which is a wholly-owned subsidiary of Handelsbanken Wealth, and is authorised and regulated by the Financial Conduct Authority (FCA). The Registrar and Depositary is The Bank of New York Mellon (International) Limited, which is authorised by the Prudential Regulation Authority and regulated by the FCA. The Investment Manager is Handelsbanken Wealth, which is authorised and regulated by the FCA.

Before investing in a Handelsbanken Multi Asset Fund you should read the Key Investor Information Document (KIID) as it contains important information regarding the fund including charges and specific risk warnings. The Prospectus, Key Investor Information Document, current prices and latest report and accounts are available from the following webpage: wealthandasset.handelsbanken.co.uk/fund-information/fund-information/, or you can request these from Handelsbanken Wealth or Handelsbanken ACD Limited:25 Basinghall Street, London EC2V 5HA or by telephone on +44 01892 701803.

Registered Head Office: 25 Basinghall Street, London EC2V 5HA. Registered in England No: 4132340