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Fear of Eurozone meltdown sends
gilt yields to all time record lows
Gilt Yields Update: 31 May 2012
Gilt Yields Table:
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15-Year Gilt Yields over 1 year
Latest yield:   1 month change:   3 month change:   6 month change:   1 year change:  
2.12%  
gilt yields down   0.55%
 
gilt yields down   0.47%
 
gilt yields down   0.58%
 
gilt yields down   1.73%
 
15-year gilt yields 2012
Fig 1: 15-year gilt yields chart showing rates to May 2012

 

Gilt yields are 55 basis points lower at 2.12%

Find out more: annuity rates for May

Fear and uncertainty over the Eurozone has driven investors to seek safer havens with funds used to purchase UK government bonds and gilts as well as US Treasury notes.

This has resulted with the 15-year gilt yields falling to the lowest ever level of 2.12% and 10-year gilt yields are down to 1.53%. In December the 10-year governement bonds reached a low of 1.95% a figure not seen since 1897 when Queen Victoria was on the throne.

There has been a multitude of negative news from the prospect of Greece leaving the euro and the Bank of England's Sir Mervyn King warning a Greek exit from euro could cost $1tn to the run on Spanish banks result ing in a 1 billion euros of deposits withdrawn. A banking collapse in Spain would mean the Eurozone bailout fund would be needed to prevent contagion spreading and this resulted in both Spanish and Italian bond yields rising as investors moved funds away from these countries.

For May the yields range for the month was from 2.67% to 2.12% or 55 basis points which is a significant fall in a single 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 - May 2012
  Tues 1st Wed 2nd Thurs 3rd Fri 4th
 
2.66%
gilt yields down   0.01
2.60%
gilt yields down   0.06
2.60%
gilt yields no change
2.56%
gilt yields down   0.04
Mon 7th Tues 8th Wed 9th Thurs 10th Fri 11th
 
2.49%
gilt yields down   0.07
2.47%
gilt yields down   0.02
2.54%
gilt yields up   0.07
2.53%
gilt yields down   0.01
Mon 14th Tues 15th Wed 16th Thus 17th Fri 18th
2.44%
gilt yields down   0.09
2.45%
gilt yields up   0.01
2.43%
gilt yields down   0.02
2.41%
gilt yields down   0.02
2.37%
gilt yields down   0.05
Mon 21st Tues 22nd Wed 23rd Thurs 24th Fri 25th
2.39%
gilt yields up   0.02
2.43%
gilt yields up   0.04
2.34%
gilt yields down   0.09
2.33%
gilt yields down   0.01
2.31%
gilt yields down   0.02
Mon 28th Tues 29th Wed 30th Thurs 31st  
2.32%
gilt yields up   0.01
2.34%
gilt yields up   0.02
2.21%
gilt yields down   0.13
2.12%
gilt yields down   0.09
 
  Fig 5: Daily 15-year gilt yields and changes

The decreases in gilt yields have placed significant pressures on providers to reduce pension annuity rates even though annuity rates have reduced in May already. Gilt yields will remain uncertain until the Eurozone can resolve the Greek and Spanish crisis in June, or at least provide a short term solution allowing the difficult decisions for later in the year to allow more time to create a larger bailout fund.

It is very likely that annuity rates will fall in June and as a general rule a 55 basis point decrease in gilt yields will result in a 5.5% reduction in annuities at some point in the future. See Annuity Rates 2012 for the latest updates.

 
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