Published by Global Banking and Finance Review
Posted on November 17, 2025
3 min readLast updated: January 21, 2026
AXA Investment Managers reduced UK bond holdings after a tax policy shift, while others still favour gilts, anticipating BoE rate cuts.
(Clarifies headline to specify AXA Investment Managers)
By Yoruk Bahceli
LONDON (Reuters) -AXA Investment Managers halved its exposure to UK bonds in some portfolios on Friday following news that the government has no plans to raise income tax, a senior fund manager told Reuters on Monday.
But fund managers at Royal London Asset Management, Allianz Global Investors and Fidelity International said they still favour British government bonds, known as gilts, because they expect the Bank of England to cut interest rates further as inflationary pressures ebb.
Britain's government borrowing costs jumped on Friday as markets had expected an income-tax hike after a speech finance minister Rachel Reeves gave earlier in November.
They retraced some of that rise on Monday.
Big bond investors, many holding positions favouring gilts, had been calling on Reeves to double the margin she leaves herself to meet her fiscal rules to 20 billion pounds and said raising income tax was the most reliable way of doing so.
"We are much less comfortable going into the budget," said Nicolas Trindade, who manages global and sterling bond portfolios for the firm, which oversees 879 billion euros ($1.02 trillion) in assets.
Having been overweight in UK bonds before Friday in the global strategy he manages, Trindade, who invests in both government and corporate bonds, said he was now positioned neutrally, in line with bond indexes, without specifying the value of his position.
REEVES EXPECTED TO STICK TO HER FISCAL RULES
Trindade expected Reeves to still stick to her fiscal rules, but said the way she is going to do that is "probably going to be a lot less credible than we first assumed".
Without an income tax hike, Trindade expects the headroom Reeves leaves herself to meet the rules will be closer to 15 billion pounds.
Investors said the latest news had raised uncertainty around the budget.
"The market is once again left calling into question both the chancellor’s credibility, and her ability to deliver on policy," said Ben Nicholl, a fund manager at Royal London Asset Management.
But he said gilts were still attractive relative to other markets and he bought five and 30-year gilts on Friday and favours shorter-dated bonds as he expects the BoE to cut rates faster than markets expect.
Ranjiv Mann, portfolio manager at Allianz Global Investors, said he was still favouring gilts against U.S. Treasuries, though he had reduced that position earlier in November with much good news around the budget already in the price.
While not raising income tax reduces the government's policy credibility, Mann said Allianz still believes that the government is going to implement a fiscal consolidation.
"You can see (from) the price action in the gilt market, that the bond markets are certainly going to apply some discipline on the government to stick to a tight fiscal stance," Mann added.
($1 = 0.8620 euros)
(Reporting by Yoruk Bahceli, additional reporting by Mike Dolan; editing by Dhara Ranasinghe and Ed Osmond)
An interest rate is the amount charged by lenders to borrowers for the use of money, expressed as a percentage of the principal. It can affect borrowing costs and investment returns.
A bond portfolio is a collection of bonds held by an investor or fund manager, designed to provide income and manage risk through diversification.
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