UK Government Bonds and Gilts enjoy rise

Stock market falls across the globe have given a boost to government bonds this Wednesday as experts speculate growing risk aversion and the start of a “flight to quality” shift.

Trepidation that pressures from rising inflation which would lead to higher interest rates than anticipated was the catalyst for driving down bond prices in the US and Europe, pushing yields to the highest level for several months.

Yet, this week, bonds’ failed to increase the move, despite comparatively solid inflation data in the UK, the US and Europe.

UK Gilts (Gilt Edged Securities) were also aided by a meeting of the Bank of England, which ended hope of pending cuts in interest rates. The committee for monetary policy agreed to fix interest rates a 4.5 percent, despite signals of economic lethargy.

By late afternoon trading on the London stock exchange, the two year gilt yield was up 0.2bp from 4.241 percent, while the 10 year gilt down by 3bp at 4.371 percent.

Date: 20.10.05