UK 5Y gilt yield drops 2+ bps to 3.765%, lowest since Sept 2024
TL;DR
UK 5-year gilt yields fell to 3.765%, the lowest since September 2024, driven by expectations of Bank of England rate cuts and improved fiscal sentiment. This reflects broader declines in gilt yields, with markets pricing in more accommodative monetary policy and positive fiscal developments.
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UK 5Y gilt yield drops 2+ bps to 3.765%, lowest since Sept 2024
UK 5Y Gilt Yield Hits 2024 Low Amid Rate Cut Expectations
UK 5-year gilt yields fell to 3.765% on February 20, 2026, marking the lowest level since September 2024, driven by heightened expectations of Bank of England (BoE) rate cuts and improved fiscal market sentiment. The decline reflects a broader trend of falling gilt yields across the curve, with 10-year yields hitting 4.393%—their lowest since April 2025—and 2-year yields dropping to 3.769%.
Investors are increasingly pricing in BoE rate cuts, with interest rate futures indicating a 75% probability of a 25-basis-point reduction to 3.75% at the December 2025 meeting, up from 46% before recent inflation data. The BoE's Monetary Policy Committee (MPC) is under pressure to act as inflation remains stable at 3.8%, despite earlier expectations of a faster decline. Analysts note that "widespread downside surprises in CPI components" have raised the likelihood of accommodative monetary policy.
Fiscal developments also contributed to the yield decline. The UK government's Autumn Budget in November 2025 provided "extra fiscal headroom", easing concerns about debt sustainability and reducing borrowing costs. Additionally, the Debt Management Office (DMO) signaled plans to issue more short-dated Treasury bills to reduce reliance on long-term debt, a move viewed positively by markets. This strategy aims to address oversupply concerns, as the UK services £110 billion annually in debt interest on a £2.9 trillion debt stock.
Looking ahead, markets are pricing in approximately 66 basis points of BoE rate cuts by December 2026, compared to 57 basis points before the latest inflation data. While 5-year yields are forecast to trade at 3.88% in 12 months, according to Trading Economics models, the immediate focus remains on the BoE's policy trajectory and fiscal credibility.
The yield decline underscores investor confidence in the UK's ability to manage debt costs amid a cautious monetary policy outlook. However, persistent structural challenges, including high debt servicing costs and limited demand for long-dated gilts, remain key risks to the trend.
