Bond investors are eyeing Rachel Reeves’s Spring Statement with “heightened caution”, wary of policy shifts and how they could affect their money – including pensions.
Financial advisers have seen a surge in enquiries from clients seeking guidance on bond investments ahead of Wednesday’s economic update, they told The i Paper.
It is two and a half years since Liz Truss’s infamous mini-Budget announced a series of unfunded tax cuts, which spooked bond markets and sent prices down and yields – essentially interest rates on bonds – spiralling.
But how do bonds work? And how could the Spring Statement affect those who have invested in them or are exposed to them via their pension pot.
The i Paper runs through all you need to know below.
What are bonds and how could the Spring Statement affect them?
Bonds are essentially IOUs. When you invest in them, you are lending money in return for interest payments in the future – one common type is a gilt, which is an investment on government debt.
They are seen as relatively safe, and so some people put money into them alongside more riskier investments, like shares. People’s pension pots are also often invested in them.
Laith Khalaf, head of investment analysis at AJ Bell, said: “What percentage of people’s pension pots are invested in bonds varies massively from scheme to scheme and often depends on the age of the individual.
“As a ballpark figure, I would say a typical default fund probably has somewhere in the region of 20 per cent to 25 per cent in bonds.”
Despite being seen as relatively safe, fiscal events like the Spring Statement and Autumn Budget can have a large impact on the value of these bonds and the yields the provide – with these yields being the return an investor gets for their money.
A rise in yields tends to be good for those getting ready to invest in bonds – because higher returns are on offer – but they are bad for existing bondholders, as if they want to sell them, the price will be lower than before yields rose.
What has happened to bonds recently?
In recent months, UK Government bond yields have experienced notable fluctuations.
The 10-year gilt yield reached 4.9 per cent in January 2025, the highest since July 2008, while the 30-year yield climbed to 5.4 per cent, a peak last recorded in August 1998.
These movements reflect investor concerns over fiscal policies, inflationary pressures, and global economic uncertainties.
Interest rates can also impact bond yields.
On Thursday, the Bank of England decided to hold the bank rate at 4.5 per cent, driven by global and domestic uncertainties, such as Donald Trump’s impending trade tariffs and the UK Government’s upcoming employer tax rise.
The Bank has been cautious with rate cuts due to inflation consistently exceeding its 2 per cent target, currently projected to reach 3.7 per cent to 4 per cent this year.
However, Richard Carter, head of fixed interest at Quilter Cheviot, said the decision to hold the base rate at 4.5 per cent was anticipated so had minimal immediate impact on the bond market.
What are people asking ahead of the Spring Statement?
The Chancellor is set to announce significant cuts to public spending to address a deficit in public finances.
The Office for Budget Responsibility (OBR) – the government’s watchdog – is likely to lower its forecast for economic growth in 2025.
Ahead of this Spring Statement, investors would be worried if Reeves appeared to be breaking her fiscal rules or if borrowing is likely to increase beyond current expectations, Carter said.
He added: “Such announcements could lead to higher bond yields and lower prices.”
Carter said he’s seen a significant uptick in investor interest regarding bonds ahead of the Spring Statement.
He said: “We are seeing heightened interest from investors in bonds ahead of the Spring Statement, with many looking to understand how potential fiscal changes could impact the fixed-income landscape.”
Discussions with clients often revolve around the timing of investing in bonds to lock in attractive yields.
He added: “Given the current environment – where yields remain historically high and geopolitical risks continue to influence markets – investors are particularly cautious about positioning within their bond portfolios”.
Rachel Springall of Moneyfactscompare.co.uk said: “We know there has been concerns over what the Spring Statement may hold, which has subsequently worried bond investors.”
What should you do if you have already invested in bonds?
If investors have invested in bonds and want to keep them for the regular income they provide, then they don’t need to take any action.
Jason Hollands, of BestInvest by Evelyn Partners, said: “If an investor bought the bonds on attractive yields and holds them to maturity, nothing really changes. They have locked in that yield.”
He added: “Retail investors do not tend to take short-term trading decisions based on upcoming statements.”
There may also be some people who want to sell their bonds, but Khalaf said it’s “impossible” to time markets with this precision without the benefit of hindsight.
He said: “Bond prices may be higher or lower after the Spring Statement, and we simply can’t predict that at the moment. If you sell your bonds, you do need to consider the costs of doing so and what you do with the money instead.”
Carter added: “Bonds continue to offer compelling opportunities, particularly in sovereign and high-quality corporate debt, but managing duration and credit risk will be key.
“While spreads in some riskier parts of the market are tight, the broad fixed-income space remains an attractive diversifier, particularly for those looking to mitigate equity risk in their portfolios.”
Should I invest in bonds now?
Bonds are often used for diversification or income, and on both scores are back on the menu for investors after many years when they yielded next to nothing and traded at very high prices, Carter said.
But he warned not to trade around events like the Spring Statement, as “you’re just as likely to lose out as pick up a bit more yield”.
He continued: “As ever it’s important to keep a long-term view when investing and pay attention to how much risk you want to take with your portfolio as a whole.
“On that front bonds can play a role as diversification alongside shareholdings and provide an income stream for those who need it too.”
