UK 10-year gilt yields hit new record low on shortfall of bond buying program; likely to fall below 0.50 pct mark

The UK gilts continued to rally Wednesday as the BoE failed to buy its entire quota of gilts in its second purchase operation in the new quantitative easing round (the first uncovered operation ever). The 10-year bond yields broke to new lows below the 0.60 percent mark, and 0.50 percent is possibly on the cards.

Also, investors bent towards safe-haven buying after hawkish Bank of England MPC member Ian McCafferty warned of further easing to come.

The yield on the benchmark 10-year gilts fell more than 6 basis points to 0.529 percent, the yield on super-long 40-year bond dipped 9-1/2 basis points to 1.165 percent and the yield on short-long 2-year bond slid 1-1/2 basis points to 0.095 percent by 10:10 GMT.

The Bank of England Monetary Policy Committee member McCafferty said that the BoE should follow a gradual approach and it is difficult to determine the right amount of stimulus.

He further said that if the economy proves to have turned down in line with initial survey signals, he believes more easing likely to be required. Bank rate can be cut further, closer to zero, and quantitative easing can be stepped up, he added.

 According to Reuters, the Bank of England fell 52 million pounds ($68 million) short of its target to buy more than a billion pounds of long-dated government debt on Tuesday, an early slip-up for one of its latest measures to stimulate Britain's economy.

For the first time since it started buying government bonds to boost Britain's economy in 2009, the central bank failed to find enough willing sellers to meet its purchase target, they added.

Meanwhile, the FTSE 100 traded 0.20 percent lower at 6,838 by 10:20 GMT.