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LONDON (Reuters) - One of the world's biggest bond funds said on Thursday that a recent rise in UK government bond yields, which have almost doubled in the last six weeks, had mostly run its course.
Yields, which move inversely to prices, have risen as a sharp drop in the pound, related to the country's decision to leave the European Union, has stoked inflation expectations.
"It's possible we get a little bit of a further rise in (gilt) yields but probably more of it is behind us than ahead of us," PIMCO's head of sterling portfolio, Mike Amey, told Reuters at a briefing in London.
Amey said he had closed a "long" position in UK government bonds and any decision to increase holdings again would depend largely on the government's fiscal policy.
New finance minister Philip Hammond is expected to deliver a package of fiscal stimulus in his autumn statement due next month which Amey said will be the next big event for investors trying to work out how Britain's economy will fare after Brexit.
Amey said gilt yields -- currently around 1 percent in the 10-year maturity -- could be tempting if the government keeps a tight rein on its finances.
"1 percent could look pretty attractive in a tight fiscal policy, and much less attractive if the deficit were to rise."
On the British pound, which struck a record low on a trade-weighted basis earlier this week, Amey said "it's likely we'll see heightened volatility for a while."
PIMCO's global economic advisor Joachim Fels said that global markets should prepare themselves for at least one more bout of volatility by the end of next year.
"What we've learned over the last few years given that markets are so fully priced or highly valued, is it doesn't take much to upset the apple cart," said Fels.
"We can have long periods of relative calm, then all of a sudden you get a bout of volatility."
Writing by John Geddie; Editing by Hugh Lawson