Brokers turn more bullish towards gilts, pound after UK budget

LONDON (Reuters) -Some brokers shifted their trade recommendations in favour of British government bonds and the pound on Wednesday, after the country's finance minister Rachel Reeves announced a big tax raising budget.

Nomura said it had closed its recommendation to buy the euro against sterling as the budget "avoided the major tail risks that could have hurt" the pound.

They said the budget's "overall fiscal 'headroom'” was increased, and so anticipate short sterling positions -- bets the currency will fall -- that had been popular going into the budget will be removed.

That would help the pound rise against the euro. The common currency dropped to as low as 87.55 pence on Wednesday, its lowest in nearly a month. 

Meanwhile, Mizuho recommended positioning for the 10-year British government bond, or gilt, to outperform the equivalent 10-year U.S. Treasury.

They said Reeves' budget "knocks off 0.3% from CPI in 2026; allowing for a more dovish BoE outlook."

Dovish is central bank jargon for being more willing to pursue rate cuts, something that supports government bonds.

British 10-year yields dropped 6 basis points on Wednesday, to 4.43%, while the 10-year Treasury yield was flat at 4.01%.

(Reporting by Alun John; Editing by Amanda Cooper)