eyeQ: how to tell what market thinks of Spring Statement

“Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance.” eyeQ

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10-year UK gilts

Macro Relevance: 63%
Model Value: 4.40%
Fair Value Gap: 32.5 basis points

Data correct as at 25 March 2025. Please click glossary for explanation of terms. Long-term strategic model.

Tomorrow Chancellor Rachel Reeves presents her Spring Statement. Given her lack of room for manoeuvre, the general expectation is that she will announce billions in spending cuts.

Fiscal policy is about macroeconomics but ultimately the government’s stance on tax and spending is inherently a political decision. In the mainstream media, the verdict on tomorrow will be viewed first and foremost via views on cuts to welfare, in job cuts among civil servants or via elements such as possible carve-outs for US tech firms from the UK’s digital tax.   

From a purely macro perspective though, a key barometer for the market’s reaction will be via gilt yields. Last year’s Budget (and the 2022 Truss Budget) prompted panic in the UK bond market, with gilt yields spiking higher.

This is important. The bond market has a direct impact on the cost of financing for UK companies and households. For example, remember that gilt yields drive UK swap yields, which are the main way banks hedge themselves when writing mortgage loans. So, higher gilt/swap yields mean higher mortgage rates for British home buyers.

eyeQ’s model for 10-year gilt yields has just slipped below our 65% threshold for a macro regime, presumably reflecting that politics has become as important as macro. So, there’s a health warning, but it is still worth noting that overall macro conditions are consistent with 10-year gilt yields trading around 4.40%.

Model value has been noisy of late – gilts have been buffeted between growth fears around Trump’s tariffs (all else being equal, suggest lower yields) and the massive pivot in German/European fiscal policy, which suggests a big increase in bond issuance ahead (all else being equal, consistent with higher bond yields).

But the overall pattern has been for macro to support lower yields at the start of the year, while the last month has seen macro become more indecisive, with eyeQ model value moving sideways.

The market currently has yields over 30 basis points higher, closer to 4.75%. That suggests we go into tomorrow with a fair degree of bad news in the price already. Even if you’re not trading gilts directly, it’s important to watch the bond market reaction. It will be an important “tell” on the UK economy and UK finances, both of which matter for equity investors.

Source: eyeQ. Past performance is not a guide to future performance. 

Useful terminology:

Model value

Where our smart machine calculates that any stock market index, single stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.

Model (macro) relevance

How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.

Fair Value Gap (FVG)

The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.

Long Term model

This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.