12 months ago, gilt (UK government bond) yields spiked, hitting highs not seen since the 2008 financial crisis. They’ve come back down a bit since, with the 10-year gilt yield broadly in the range of 4.45-4.75% throughout most of 2025.
With a very popular low-coupon gilt maturing at the end of January, we look at what might be in store for gilts in 2026.
This article isn’t personal advice. Remember, investments and any income from them can rise and fall in value, so you could get back less than you invest. Yields are variable and past performance isn’t a guide to the future. If you’re not sure if an investment’s right for you, ask for financial advice.
What happened to gilt yields 12 months ago
This time last year gilt yields were rising (with prices falling). They’d been on an upward trend since September 2024. Uncertainty around the affordability of future government spending, low growth and sticky inflation were all having an impact. As were rising US Treasury (government bond) yields.
But in mid-January 2025, gilt yields, for those maturing up to 10 years in the future, peaked. The shift in sentiment was largely linked to increased conviction that interest rates would be cut in the UK throughout the year, which was backed up by a cut on 6 February.
What’s happened to gilts since January 2025?
Throughout 2025 two things happened to gilt yields.
Those with maturities of less than 10 years saw yields fall while those that matured in more than 10 years saw yields rise. Although the journey wasn’t smooth in either direction.
The reason for this was largely linked to the perceived affordability of government debt. This isn’t a problem for gilts with less time until they mature because there’s more certainty that the UK government will pay bondholders back. So, shorter-dated gilt yields tend to move in-line with short-term interest rate expectations.
But predicting what the government might be able to afford in 20-30 years is much harder. And for longer dated gilts, the impact of future inflation is a bigger concern because, in real terms, it erodes the value of gilts over time. Investors therefore demanded a higher level of return (yield) for buying gilts that would take longer to mature.
Sentiment changed in October 2025, when details about the Budget became clearer. Confidence in the government to balance the books over the long term increased. At the same time, inflation started to fall again, causing bond yields to fall across all maturities.
What’s in store for 2026?
It’s likely there will be two or three interest rate cuts in the UK this year. Inflation is also likely to fall. These factors are positive for gilts but are likely already reflected in prices.
Yields of gilts with different maturities feel broadly sensible, with the lowest yields on those due to mature most quickly, and the highest yields on those due to mature a long way into the future. This is common and broadly what investors should expect in a ‘normal’ market environment.
Barring a market shock, it doesn’t feel like there’s much reason for yields to move massively in either direction.
Inflation is likely the biggest risk that could cause yields to increase because higher inflation might cause the Bank of England to stop cutting rates. Higher economic growth could also stop any potential rate cuts, but this feels unlikely.
More likely is a negative market shock, be it an AI bubble bursting or increased geo-political tensions. This would likely be good for gilts because investors might decide to sell more risky assets and buy gilts, pushing their yields down (and prices up). Or the Bank of England might need to cut interest rates to prop up the economy.
Probably though, gilt yields in 2026 are likely to move within a range around their current values.
For our wider thoughts on markets this year, take a look at our 2026 Market Outlook.
Investors who bought the low coupon gilt that matures on 30 January 2026 will soon need to decide what to do with that money. Whether you plan on selling the gilt ahead of its maturity or waiting for the government to pay the lump sum post maturity, making sure there’s a plan in place is the most important thing.
Take a look at our gilt maturity page for some ideas based on three common investing needs and goals. But remember that if you’re not sure, you should always seek financial advice.
3 fund ideas
For investors who want a diversified approach to bond investing, below we highlight three funds that might be of interest.
Investing in funds isn’t right for everyone. Investors should only invest if the fund’s objectives align with their own, and there’s a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a long-term, diversified portfolio.
For more details on each fund, its charges and specific risks, please see the links to their factsheets and key investor information below.
Invesco Tactical Bond
One of our 5 funds to watch for 2026, managers Stuart Edwards and Julien Eberhardt can invest in all types of bonds, including government and corporate bonds, with very few constraints. The fund’s performance hinges on their ability to interpret the bigger economic picture. They aim to shelter the fund when they see tough times ahead – and seek strong returns as more opportunities become available.
Like all funds featured here, this one can change the amount invested in gilts over time depending on the managers’ outlook. The fund had 17% invested in them at the end of November 2025.
We think this is a good fund for exposure to the wider bond market. It takes away the hassle of deciding which type of bonds to invest in and when because the managers are given the discretion to make these decisions for you. Over the long term the aim is to deliver a total return, through the combination of capital growth and income, rather than focusing purely on generating a high yield.
The managers can invest in high yield bonds, emerging market debt and use derivatives, all of which add risk. Investors should note that, as of 30/09/2025, this fund invests 15% in companies involved with the extraction of oil, gas or coal. This could leave the fund vulnerable to fluctuations in commodity prices, regulatory changes aimed at reducing carbon emissions, and potential shifts in consumer preferences towards sustainable alternatives.
Ninety One Diversified Income
For investors considering gilts as an investment to provide income, Ninety One Diversified Income could be of interest. As the name suggests, it focuses on income. Managers John Stopford and Jason Borbora-Sheen mainly invest in bonds from around the world but also invest in some company shares too.
The fund’s four largest individual investments were in gilts at the end of November, totalling 12.2%.
The fund could provide some stability to an investment portfolio focused on growth, or a portfolio focused on company shares. Given the focus on providing an income, it could also form part of a portfolio focused on income. Unlike a number of it’s peers, this fund aims to limit losses, however there is still potential for losses so we view it as a step up in risk from cash.
The managers can invest in high yield bonds, emerging market debt and use derivatives, all of which add risk. Please note that the fund takes charges from capital. This can increase the amount of income paid but reduces the potential for capital growth.
JPM Global Bond Opportunities
For investors interested in bonds but not specifically gilts, the JPM Global Bond Opportunities fund could be a good choice. The managers aim to achieve a balance between income and capital growth over the long term (at least five years).
There are six managers working on the fund, all with different specialist areas of the bond market. This means investors get access to JPMorgan’s global fixed income investment capabilities within a single fund.
The result is an extremely diversified bond fund that typically has more than 1,000 individual bonds, invested across 15 different parts of global fixed income markets, from over 50 different countries. Investing in that many bonds reduces the potential impact that each individual investment can have on overall returns for the fund, both positively and negatively. But it still allows investors to benefit from each individual team’s best ideas and from their overall bond selection ability.
At the end of November, the fund had little to no investments in gilts.
The managers can invest in high yield bonds, emerging markets, currencies and use derivatives, all of which add risk.