Fixed Income  

Bond yields plunge to record low

Bond yields plunge to record low

The yield on UK government bonds has fallen to a record low as fears over the global economy push investors into safer assets.

According to data house Bloomberg, the yield on a ten-year gilt dropped to 1.22 per cent yesterday (9 June), which is its lowest level since the company began collecting data 27 years ago.

The demand for bonds, which is seen as a ‘safe’ asset, causes the value to rise and yields to fall.

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Today (10 June) the yield on a ten-year gilt hit 1.24 per cent.

Joshua Mahony, market analyst at online trading firm IG, said the confidence which has built up this week seemed to be “ebbing away” yesterday, as investors ploughed money into “reliable havens” following a sharp pullback in stock markets across Europe.

He said one of the biggest drivers of volatility has been the comeback in the US dollar, which has “sparked a reversal in fortunes” across dollar-denominated commodities.

“The flight to safety has been reflected in the bond market, where many of the main government yields fell to new all-time lows,” Mr Mahony said.

“Quite frankly, this does not happen overnight, and the prospect of US stocks hitting new all-time highs at the same time treasury yields at all-time lows is certainly not something to fill investors with confidence.

“There is a feeling that despite recent gains, the upside benefit could be outweighed by the risk of another sell-off, especially considering the potential implications of a Brexit.”

Mr Mahony said it makes sense that investors try to find ‘safe’ yield elsewhere after the Fed delayed another interest hike this summer.

katherine.denham@ft.com