Gilt yields recover as investors sell bonds

With the expectation of less stimulus supporting the price of bonds and gilts investors have been selling globally sending prices down and yields up.

A similar stance to top stimulus was taken last month from the European Central Bank (ECB) indicating the end of the asset purchase programme expected now in the summer of 2019.

Fig 1: Chart comparing standard annuity rates and 15-year gilt yields

The above chart compares the change in annuity rates and 15-year gilt yields since August 2017. Providers trailed the rise in yields during 2017 and were back on a level basis by February 2018.

The providers have since maintained rates and for for our benchmark example of a 65 year old with a £100,000 fund buying a single life, level income rates are 2.92% higher rising from £5,473 pa a year ago to £5,633 pa in July 2018.

Over the year there has been an increase of £160 pa in lifetime income, the Office of National Statistics (ONS) would expect a male to live for 17.3 years and he will have £2,768 more over his lifetime. For a female she can expected to live for 20.4 years increasing her lifetime income by £3,264.

For annuities the providers have maintained annuity rates above the rise in gilt yields with more competition and an expectation of higher interest rates in the future and less stimulus from central banks.