Goldman Sachs(US:GS) Xin Lang Cai Jing·2026-02-16 11:47Core Viewpoint - Goldman Sachs strategists predict that UK government bonds will rise by 2026, driven by interest rate cuts from the Bank of England, leading to the lowest borrowing costs since 2024 [1][3]. Group 1: Interest Rate Predictions - The benchmark 10-year UK government bond yield is expected to reach 4% by the end of this year, with a 40 basis point decrease anticipated due to falling inflation prompting the Bank of England to act [1][4]. - The macroeconomic environment is expected to support a decline in bond yields despite ongoing political risks [4]. Group 2: Political and Economic Context - Political uncertainty is expected to remain high as local elections approach, with the Labour Party, led by Keir Starmer, anticipated to perform poorly, potentially keeping risk premiums elevated [3][6]. - Strict fiscal constraints faced by the UK government are expected to mitigate political risks, limiting the extent of policy fluctuations during potential government changes [6]. Group 3: Market Recommendations - The reduction in macroeconomic uncertainty and the intensifying trend of falling inflation are providing support for UK government bonds, leading the money market to price in nearly two interest rate cuts by the Bank of England by 2026 [6]. - The recommendation is to buy UK government bonds while selling German bonds [6].