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28 February 2013 last updated
Gilt yields lower as investor fear US Fed comments and Italian deadlock
15-year gilt yields chart
Based on figures for February 2013
15-year gilt yields February 2013
 

The 15-year Gilt yields fell by 8 basis points as the US Federal Reserve questions QE3 and Italy ends with electoral deadlock sending investor funds to safe havens such as UK government gilts.

gilt yields:  
annuity rates up 8 basis points

The 15-year gilt yields reached a high for the year of 2.76% before falling 24 basis points to 2.52% as the US Federal Reserve was concerned about the impact of Quantitative Easing as it increases risks to the economy making investors fear they would reduce or even stop the programme.

 
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Yields fall as investors seek safe havens

As economic fears increase institutional investors seek safe havens such as German Bunds, US Treasury notes and UK government debt such as bonds and gilts. This increases the price and reduces the yields which will result in lower annuity rates at retirement.

The falls in gilt yields was due to a number of reasons including the US Federal Reserve comments about the $85bn per month Quantitative Easing or QE3 stimulus was increasing the risks of future economic and financial imbalances. For investors this may mean they will reduce or stop the stimulus which could reverse gains in the equity markets.

At the same time David Miles of the Bank of England explained how their asset purchasing model using QE to injected money into the economy by buying government gilts could be in the region of £175 billion adding to the current level of £375 billion.

The last factor was the Italian election deadlock where the markets feared the European Central Bank (ECB) will not be able to support the Italian bond market as under the Outright Monetary Transactions (OMT) scheme as a majority of the votes went to parties that are opposed to austerity measures. This would make it impossible for the ECB to buy Italian bonds should the need a bailout.

The above factors resulted in yields falling 24 basis points and it is likely that annuity rates will also adjust downwards from some providers.

For February the yields range for the month was from 2.52% to 2.76% or 24 basis points which is less volatile than the previous month. 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 - February 2013
        Fri 1st
       
2.60%
gilt yields no change
Mon 4th Tues 5th Wed 6th Thurs 7th Fri 8th
2.60%
gilt yields no change
2.63%
gilt yields up   0.03
2.62%
gilt yields down   0.01
2.63%
gilt yields up   0.01
2.63%
gilt yields no change
Mon 11th Tues 12th Wed 13th Thurs 14th Fri 15th
2.64%
gilt yields up   0.01
2.66%
gilt yields up   0.02
2.76%
gilt yields up   0.10
2.74%
gilt yields down   0.02
2.75%
gilt yields up   0.01
Mon 18th Tues 19th Wed 20th Thurs 21st Fri 22nd
2.75%
gilt yields no change
2.74%
gilt yields down   0.01
2.76%
gilt yields up   0.02
2.67%
gilt yields down   0.09
2.67%
gilt yields no change
Mon 25th Tues 26th Wed 27th Thurs 28th  
2.67%
gilt yields no change
2.55%
gilt yields down   0.12
2.52%
gilt yields down   0.03
2.52%
gilt yields no change
 
  Fig 2: Daily 15-year gilt yields and changes

Based on the sudden changes in yields standard annuities are likely to fall in the short term by 2.29% and enhanced rates to fall by 2.45%. If providers can wait yields may recover and avoid this level of decreases. See Annuity Rates Review for the latest updates.

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