Equity markets rally on hopes for vaccine as yields lack direction

15-year gilt yields chart - Based on figures for May 2020

May 2020 Review

The 15-year gilt yields increased during the month as equity markets rallied following news from drugs researcher Moderna that their Phase 1 trial for a vaccine against Covid-19 was positive.

At the end of the month yields reduced following comments made by President Donald Trump increasing pressure on China over the new security laws restricting Hong Kong in the future.

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The 15-year gilt yields are lower by -5 basis points to 0.37% during May 2020 with small variations during the month.

Providers of standard annuities decreased annuity rates by an average of -0.75% for this month and we would expect rates to rise by 0.25% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have decreased their rates by an average of -0.43% and rates and we would expect rates to increase -0.07% in the short term if yields do not fall.

Fig 1 below shows the annuity rates changes for the whole market and the proportion that have either increased, decreased or or did not change. It also shows the range of the changes of the annuity rates over the last month:

Annuity Rates Changes Increase No change Decrease   11%   12%   77% Increases of: max 1.2%   Decreases of: max -2.4%

Fig 1: Annuity rate changes for the whole market

Fig 2: Change in standard rates last month compared to gilt yields

Fig 3: Change in enhanced rates last month compared to gilt yields