Friday 24 November 2017

UK bond yields hit record low after BoE statement

City workers walk past the Bank of England in London. Photo: Toby Melville/Reuters
City workers walk past the Bank of England in London. Photo: Toby Melville/Reuters

Demand for safe-haven treasury bonds strengthened again yesterday. The 10-year UK gilt yield sank to a record low of 0.54pc after it emerged that the Bank of England's bond-buying programme was running into difficulties due to investor reluctance to sell at current prices.

The UK central bank said yesterday it would not aim to make up the shortfall immediately but instead wrap it into the second half of the six-month programme, details of which will be announced on November 3.

The announcement "has the bank kicking the can down the road and has created a 'wait and see' scenario for investors looking at reasons for the failure", said Darren Bustin, head of derivatives at Royal London Asset Management.

Government bond prices surged after the BoE announcement, pushing yields to record lows. Some short-dated non-benchmark 2019 and 2020 gilts dipped into negative territory, though not for the first time.

"Central banks look increasingly accommodative and no one seems to be going against that trend ... which supports all asset prices," said Anton Heese, head of European rates strategy at Morgan Stanley in London.

In the UK, the Institute for Fiscal Studies released a report estimating that Britain's access to the European Single Market could be worth up to 4pc of GDP each year.

A Bank of England survey stated that growth slowed across British business services and consumer spending eased last month, offering a more mixed picture of the economy than some of the gloomier indicators since June's Brexit vote.

The FTSE 100 index was flat in mid-afternoon trading. The German Dax was down 0.3pc after record gains on Tuesday, while in France, the CAC was down just under 0.3pc.

In Dublin, the ISEQ overall index was trading down 28.72 points, or 0.48pc, at 5931.41 by the mid-afternoon.

Shares in food producer Aryzta were up almost 6pc, while Independent News and Media stocks gained 3.8pc. Aminex, the Irish-based African oil and gas exploration firm, gained over 11pc.

Shares in Bank of Ireland were down by over 3pc, while Kerry Group stocks lost over 1pc. Providence Resources saw almost 7pc wiped off the value of its shares,

On currency exchanges, the euro was up 0.4pc against the dollar, trading at $1.11 and was trading at 85 pence sterling. The pound was static against the Greenback at $1.30.

On the commodities markets, a barrel of Brent crude fell by 0.2pc, while an ounce of gold rose by 0.4pc.

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