By Yoruk Bahceli
LONDON (Reuters) -AXA Investment Managers halved its exposure to UK bonds in some of its portfolios on Friday following news that the government has no plans to raise income tax, a senior fund manager told Reuters on Monday.
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, with 10-year gilt yields trading around 4.54%.
“We are much less comfortable going into the budget,” said Nicolas Trindade, who manages global and sterling bond portfolios for the firm.
AXA Investment Managers oversees 879 billion euros ($1.02 trillion) in assets.
Having been overweight UK bonds before Friday in the global strategy he manages, Trindade said he was now positioned neutrally, in line with bond indexes. He did not specify the value of his position.
He invests in both government and corporate bonds.
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.”
Big bond investors, many holding positions favouring gilts, had called 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.
Without that, Trindade expects the headroom will be closer to 15 billion pounds.
($1 = 0.8620 euros)
(Reporting by Yoruk Bahceli; editing by Dhara Ranasinghe)
