Chris Wheal(Reuters) The difference between two-year and 10-year British government bond yields hit its lowest level in more than a year on Wednesday, part of a global trend of investors doubting inflation will be strong enough to push up interest rates much.
The yield spread between the two benchmark gilts narrowed to 75.9 basis points, its lowest level since early October 2016 and down around 4 bps on the day.
Analysts said the move was driven by similar moves in US and European markets rather than British economic news or a further hardening of bets that last week’s Bank of England rate hike will be a case of “one and done”.
30-year gilts
Tuesday’s very strong demand for a new 30-year inflation-linked gilt at sale via syndication also helped to flatten the British yield curve, said Vatsala Datta, fixed income strategist at RBC.
“Curves internationally have also been flattening, particularly in the US. It’s generally demand for safe-haven bonds,” she said.
“In the US I think it’s driven by policy expectations, there’s no inflationary impetus domestically.”
Political uncertainty has also helped to bolster safe-haven bonds such as gilts and US Treasuries.
Theresa May
In Britain, Prime Minister Theresa May’s government has been rocked by a series of scandals just as it attempts to breathe new life into Brexit talks.
Ten-year gilt yields fell 2.7 basis points on the day to 1.21%.
The yield spread between 10-year British and German government bonds stood at 89.3 basis points, down roughly 3 bps on the day.
