Eurozone bank bailout deal sees 15-year
gilt yields rebound strongly
Find out more: annuity rates for June
Gilt yields are 17 basis points higher at 2.29%. The 15-year gilt yields reached the lowest ever point of 2.06% on 5 June 2012 before recovering a few days later as Spanish and Italian bonds experienced a significant increase in yields.
The main concern was the banking system in Spain nearing collapse and the agreed 100 billion euro bailout without the austerity measures attached to the country. Borrowing costs for both Spain and Italy increased significantly with the Spanish 10-year bond yields increasing to 6.8%, close to 7% which is considered unsustainable and Italy 10-year bond yields to 6.2%.
On the 29 June a radical bailout package was announced between Angela Merkel, the German chancellor, Mariano Rajoy, the Spanish prime minister and Italian prime minister Mario Monti which will involve a supervisory system for eurozone banks to provide funding directly from the European bailout fund and without the country requiring to implement austerity measures. The immediate effect was a reduction in the yields for Spanish 10-year bonds to 5.8%
and Italy to 4.5%.
For June the yields range for the month was from 2.32% to 2.06% or 26 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 - June 2012 |
| |
|
|
|
Fri 1st |
| |
|
|
|
| 2.12% |
 |
|
| Mon 4th |
Tues 5th |
Wed 6th |
Thurs 7th |
Fri 8th |
| |
| 2.06% |
 |
|
0.06 |
|
| 2.19% |
 |
|
0.13 |
|
| 2.28% |
|
|
0.09 |
|
| 2.19% |
|
|
0.09 |
|
| Mon 11th |
Tues 12th |
Wed 13th |
Thus 14th |
Fri 15th |
| 2.20% |
|
|
0.01 |
|
| 2.25% |
|
|
0.05 |
|
| 2.32% |
|
|
0.07 |
|
| 2.31% |
|
|
0.01 |
|
| 2.25% |
|
|
0.06 |
|
| Mon 18th |
Tues 19th |
Wed 20th |
Thurs 21th |
Fri 22th |
| 2.23% |
|
|
0.02 |
|
| 2.29% |
|
|
0.06 |
|
| 2.30% |
|
|
0.01 |
|
| 2.23% |
|
|
0.07 |
|
| 2.25% |
|
|
0.02 |
|
| Mon 25th |
Tues 26th |
Wed 27th |
Thurs 28th |
Fri 29th |
| 2.20% |
|
|
0.05 |
|
| 2.22% |
|
|
0.02 |
|
| 2.23% |
|
|
0.01 |
|
| 2.18% |
|
|
0.05 |
|
| 2.29% |
|
|
0.11 |
|
|
| |
Fig 5: Daily 15-year gilt yields and changes |
|
Although annuity rates have reduced throughout June there may be scope for annuities to increase with the news of the European bank bailout fund if gilt yields. As a rough guide a 17 basis point increase in gilt yields would translate into a 1.7% increase in annuity rates. See Annuity Rates 2012 for the latest updates.
|
|
|
