Gilt yields continue to fall

Bond prices are up following the Bank of England’s stimulus package announced on 4 August. Some market commentators felt that the measures did not go far enough. Darren Bustin, of Royal London Asset Management, is one of many who are worried that consumer spending will be affected if the government does not partner its Central Bank by introducing some form of fiscal support.

Others felt they went too far. One former member of the Bank’s own Monetary Policy Committee, Dame Kate Barker, had argued against the rate cut, and Kristin Forbes, a current member, described the extent of the package as “premature”. Three members of the nine-person committee disagreed with the plan to purchase a further £60bn in government bonds.

But if there is one winner in the aftermath of Thursday’s announcement, it is the bond market. The first phase of the £60bn bond buy-back scheme yesterday was stymied by reluctant sellers, and gilt yields spiralled to record lows in response. For the first time since the Brexit vote, and the second time ever, 10-year gilts maturing in 2019 and 2020 offered a negative yield at 0.54%, down by almost 4bp.

There is resistance in the market, particularly from pension funds, to relinquishing quality bonds in the current risk-off market environment.