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30 June 2013 last updated
Gilt yields surge to 3.08% high as US Federal Reserve ends stimulus
15-year gilt yields chart
Based on figures for June 2013
15-year gilt yields June 2013
 

Bonds and gilts have fallen in price sending yields 42 basis points higher at 3.08% after the US Federal Reserve announced a reduction in the stimulus package and the EU agreed a euro rescue fund.

gilt yields:  
annuity rates up 42 basis points

Annuity rates have been given a boost as the US Federal Reserve decides to reduce the current $85 billion a month of stimulus and end this by July 2014 undermining the price of bonds and gilts that have been supported by the Fed's buying using Quantitative Easing.

 
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US Fed moves to deflate equity and bond markets

At the beginning of the month improved US economic data showed 175,000 news jobs were created resulting in higher equities and a rise in yields. However, it was only after the US Fed announced it's strategy for the stimulus package that the 15-year gilt yields surged higher.

The FTSE-100 index reduced 811 points to 6,029 and the Dow Jones down 750 to 14,659 as investors had doubts over the continuation of this extra liquidity to the markets. The bond market has benefited from Quantitative Easing where bonds are purchased by printing money releasing funds to be invested elsewhere and also increasing the demand and price of bonds. For the moment the bubble in equities and bonds has been deflated.

Annuities are essentially based on the 15-year gilt yields and a 42 basis point rise would result in a 4.2% increase in annuity rates although any gain has been off-set by falling equities for those that remain invested before buying their annuity.

For June the yields range for the month was from 2.57% to 3.08% or 51 basis points which is even greater 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 - June 2013
Mon 3rd Tues 4th Wed 5th Thurs 6th Fri 7th
2.57%
gilt yields no change
2.62%
gilt yields up   0.05
2.59%
gilt yields down   0.03
2.60%
gilt yields up   0.01
2.64%
gilt yields up   0.04
Mon 10th Tues 11th Wed 12th Thurs 13th Fri 14th
2.70%
gilt yields up   0.06
2.73%
gilt yields up   0.03
2.71%
gilt yields down   0.01
2.69%
gilt yields down   0.02
2.64%
gilt yields down   0.05
Mon 17th Tues 18th Wed 19th Thurs 20th Fri 21st
2.66%
gilt yields up   0.02
2.71%
gilt yields up   0.05
2.69%
gilt yields down   0.02
2.85%
gilt yields up   0.16
2.95%
gilt yields up   0.10
Mon 24th Tues 25th Wed 26th Thurs 27th Fri 28th
3.08%
gilt yields up   0.13
3.05%
gilt yields down   0.03
2.99%
gilt yields down   0.06
2.96%
gilt yields down   0.03
2.99%
gilt yields up   0.03
         
         
  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 1.87% with smoker and enhanced rates to decrease by 0.91%. See Annuity Rates Review for the latest updates.

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