Global yields continue to tumble as gilts glide higher

Fear of lack of sellers in the market has triggered an impressive rally for the U.K. Gilts, which in turn has triggered a fresh hunt for yield in the sovereign bond market. After an auction by the Bank of England (BoE) to buy long-dated gilts fell short of the target by £52 million, investors are betting that the central banks would have to pay more to complete their targeted asset purchases. Since the Bank of England (BoE) announced its comprehensive package of easing that includes asset purchases of £70 billion, 2-year gilt yield has declined by around 35 percent. Yields decline when bond price move up. UK 10-year benchmark yield that was trading at 1.5 percent at the beginning of June has tumbled to just 0.53 percent as of yesterday. Similarly, the 30-year benchmark has tumbled almost 100 basis points for the same period.

In the global markets, yields on the 10-year bonds issued by Spain and Ireland have set new record lows of 0.9 per cent and 0.33 per cent respectively. Investor demand for the sale of new 10-year US Treasury notes was strong on Wednesday and the yield at the current benchmark fell by 3 basis points to 1.51 percent. China’s benchmark bond yield fell below 2.7 percent, the lowest since the global financial crisis.

The Bank of England (BoE) governor Mark Carney  has ruled out the possibility of a negative rate but the benchmark 2-year yield just 11 basis points away from that territory as of now.