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30 August 2013 last updated
Yields reach high of 3.29% as investors expect changes to interest rates
15-year gilt yields chart
Based on figures for August 2013
15-year gilt yields August 2013
 

15-year gilt yields continue to increase 23 basis points to a high for the year of 3.29% sending annuity rates up as investors expect interest rates to rise and stimulus to stop.

gilt yields:  
annuity rates up 23 basis points

Investors have been influenced by continued expectation that the US Fed will taper their stimulus package, the Bank of England are likely to raise interest rates and evidence the Eurozone will exit their recession sending the price of bonds and gilts lower and yields to new highs for the year.

 
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Bank of England to keep interest rates at 0.5%

The Governor Mark Carney has unveiled the new "forward guidance" policy to keep interest rates at 0.5% allowing investors scope to plan for the future. Markets seem skeptical that this will be the case helping to reduce the price of gilts and increase yields.

This will makes borrowing for the government more expensive and may mean the Bank of England will have to return to Quantitative Easing if the markets do not accept the "forward guidance" policy that interest rates will remain at 0.5% for the next three years.

Threat of military action in Syria has created fear with investors moving funds to safe havens reducing yields and this could counter the improvements we have seen.

For August the yields range for the month was from 2.93% to 3.29% or 36 basis points which is more volatile than previous months. Fig 2 below shows the daily 15-year gilt yields and the increase or decrease from the previous day's close:



15-Year Gilt Yields - August 2013
      Thurs 1st Fri 2nd
     
2.97%
gilt yields up   0.04
3.99%
gilt yields up   0.02
Mon 5th Tues 6th Wed 7th Thurs 8th Fri 9th
3.03%
gilt yields up   0.04
3.04%
gilt yields up   0.01
3.03%
gilt yields down   0.01
3.05%
gilt yields up   0.02
3.05%
gilt yields no change
Mon 12th Tues 13th Wed 14th Thurs 15th Fri 16th
3.04%
gilt yields down   0.01
3.17%
gilt yields up   0.13
3.19%
gilt yields up   0.02
3.24%
gilt yields up   0.05
3.26%
gilt yields up   0.02
Mon 19th Tues 20th Wed 21st Thurs 22nd Fri 23rd
3.29%
gilt yields up   0.03
3.23%
gilt yields down   0.06
3.26%
gilt yields up   0.03
3.25%
gilt yields down   0.01
3.23%
gilt yields down   0.02
Mon 26th Tues 27th Wed 28th Thurs 29th Fri 30th
 
3.14%
gilt yields down   0.09
3.17%
gilt yields up   0.03
3.15%
gilt yields down   0.02
3.16%
gilt yields up   0.01
  Fig 2: Daily 15-year gilt yields and changes

Based on the changes in yields standard annuities are likely to increase in the short term by 0.37% with smoker and enhanced rates to increase by 0.44%. See Annuity Rates Review for the latest updates.

News related stories:
Latest annuity rates improve 1.5% but Syria action could reverse gains
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