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31 March 2013 last updated
Gilt yields fall after US budget cut and Cyprus bank account fears
15-year gilt yields chart
Based on figures for March 2013
15-year gilt yields March 2013
 

The 15-year Gilt yields fell by 19 basis points as the US debates a resolution for budget cuts and Cyprus is forced by the EU to include a tax on savers that could spread to other countries forcing investor funds to safe havens such as UK government gilts.

gilt yields:  
annuity rates up 19 basis points

The 15-year gilt yields increased to 2.63% until it was clear from the Cyprus bailout that savers may be expected to cover some of the cost rather than the ECB as was originally expected.

 
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Cyprus exposed investors to eurozone risks

The action by the EU to force Cyprus to accept a bailout deal that included savers taking a 6.75% tax charge on savings under 100,000 euros and 9.9% for savings above 100,000 was rejected by angry Cypriots. For institutional investors it also undermined the understanding given by European Central Bank (ECB) that pledged to do "whatever it takes" to protect and bailout member states.

If the eurozone could apply a tax to savers in Cyprus they could do this to any country and in principle the ECB pledge lacked substance increasing the risk of sovereign bond investments. As investors feared a return to the original eurozone debt issues funds were moves to safe havens such as US Treasury notes and UK government debt such as bonds and gilts.

Since the high during the month of 2.63% the 15-year gilt yields have reduced by 20 basis points to 2.33%. As annuity rates are based primarily on gilt yields this would suggest as a general guide that annuities would reduce by 2.0%.

Earlier this month the US $85 billion of budget cuts called sequestration was a concern with investors as a full implementation would mean lower growth of only 1.4%. This would then impact on the global economy and investors moved funds resulting in a 9 basis point fall in the 15-year gilt yields.

For March the yields range for the month was from 2.30% to 2.63% or 33 basis points which is more 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 - March 2013
        Fri 1st
       
2.43%
gilt yields down   0.09
Mon 4th Tues 5th Wed 6th Thurs 7th Fri 8th
2.46%
gilt yields up   0.03
2.53%
gilt yields up   0.07
2.52%
gilt yields down   0.01
2.57%
gilt yields up   0.05
2.63%
gilt yields up   0.05
Mon 11th Tues 12th Wed 13th Thurs 14th Fri 15th
2.59%
gilt yields down   0.04
2.55%
gilt yields down   0.04
2.55%
gilt yields no change
2.56%
gilt yields up   0.01
2.53%
gilt yields down   0.03
Mon 18th Tues 19th Wed 20th Thurs 21st Fri 22nd
2.48%
gilt yields down   0.05
2.41%
gilt yields down   0.07
2.43%
gilt yields up   0.02
2.43%
gilt yields no change
2.41%
gilt yields down   0.02
Mon 25th Tues 26th Wed 27th Thurs 28th Fri 29th
2.38%
gilt yields down   0.03
2.35%
gilt yields down   0.03
2.30%
gilt yields down   0.05
2.33%
gilt yields up   0.03
 
  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 2.86% with smoker and enhanced rates to fall by 1.06%. See Annuity Rates Review for the latest updates.

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