UK yields fall as investors seek safe haven debt

INVESTORS drove long-term interest rates down to below one per cent yesterday as they sought to keep their money safe in UK government debt.

The £3.5bn issuance of debt maturing in 2029 was oversubscribed, with more than £10bn placed in orders.

Gross real yields fell to 0.085 per cent despite the lengthy term of the bond, indicating the level of support for the UK’s fiscal plans.

Furthermore, the index-linked aspect shows investors are looking for real returns – that is, yields protected against inflation.

Consumer price inflation still stood at five per cent in October, though the Bank of England expects it to fall sharply into next year to below the two per cent target during 2013 and 2014.

City A.M. understands that the Debt Management Office (DMO) was not expecting demand to hit such high levels, and so yields were lower than expected.

However, the DMO does have a strict policy of spreading issuance evenly over the year, and does not change plans to take advantage of lower yields on a day-to-day basis.

The low yield contrasts starkly with rising rates in much of Europe.