This couldn't be clearer. It is saying two things. First, the reason long-term gilt yields are low in the UK (and similarly in virtually every other "advanced economy with monetary independence") is weak growth, not "confidence" or "credibility". "Bond yields are driven more by growth expectations." That is, yields are low not because of economic confidence but because of its exact opposite. This is precisely what I and others (Simon Wren-Lewis here, and of course Paul Krugman in the US) have long been arguing. Indeed, the specific evidence the IMF cites - that yields have fallen when stock markets have fallen - is precisely that, in the UK, I first pointed here a year ago.
Second, that there is no reason to believe that slowing fiscal consolidation would "trigger an adverse market reaction". In other words, when the Chancellor said that "these risks [of slowing consolidation] are very real, not imaginary", he was, once again, indulging in evidence-free speculation, not serious analysis. Indeed, the Fund accurately points out that the main reason yields might rise (slightly, not precipitiously) if fiscal policy were to be loosened would be because of "expectations of higher near-term growth". As I pointed out here, this would be good news.
