UK gilt yields fall to record low after BoE lowers bank rate first time since 2009

The UK gilts continued to rally on Friday after the Bank of England lowered its key interest rate by 25 basis points to 0.25 percent in its monetary policy meeting, concluded on August 4. It has also announced to resume quantitative easing by an additional 70 billion pounds and signalled of near-zero rates ahead.

The yield on the benchmark 10-year gilts fell 1 basis point to 0.637 percent (new record low), the yield on super-long 40-year bond also dipped 1-1/2 basis points to 1.324 percent (fresh record low) and the yield on short-long 3-year bond slid 1 basis point to 0.114 percent by 10:30 GMT.

The BoE Governor Mark Carney, speaking on LBC radio, said that interest rates will only be cut further if deemed appropriate, adding that the public shouldn't worry about credit supply as the current situation is not like the financial crisis. He also stated that other countries have got low-interest rate policies wrong.

Similarly, the  BoE deputy Governor Ben Broadbent, speaking on BBC radio, said that the marked downturn in a number of business or employment surveys prior to the BoE policy decision were not just about confidence but about actual decisions about activity and employment, adding that he doesn't think the central bank's action sent out a message of panic. He added that he is reasonably confident that the imparted policy stimulus will have some effect.

On Thursday, the central bank’s MPC meeting has ended the decisions with a 0.25 percent (25 basis points) cut of bank rate to a record low of 0.25 percent, from 0.5 percent previously. This was the first such move since March 2009.

It has also declared to resume quantitative easing (QE) by an additional 60 billion pounds of gilt and top-tier corporate bond purchases of 10 billion pounds, which shall be financed via reserves issuance.

However, the bank rate cut was widely expected, but the quantitative easing was not so extensively expected and neither was the forward guidance of the likelihood of a further cut in the Bank Rate to close to zero during the course of the year.

Looking ahead, we foresee that this decision has created an opportunity to go long as the outcome is construed as more supportive for gilts.

Meanwhile, the FTSE 100 traded 0.26 percent higher at 6,757 by 10:30 GMT.