Bank of England Cuts Key Rate

In a recent move, the Bank of England has decided to lower the key interest rate by a quarter of a percentage point, bringing it down to 4.5%. This decision has led to a noticeable shift in the financial markets, particularly affecting the yields on United Kingdom government bonds, or gilts.

Impact on Gilt Yields

Following the rate cut, there has been a significant decline in gilt yields. The 10-year gilt yield fell by 4.9 basis points to 4.391%, while the two-year gilt yield saw a decrease of 5.4 basis points to 4.0900%. Similarly, the 30-year gilt yield experienced a slight dip, dropping by 3.8 basis points to 4.993%.

Economic Concerns Drive Safe-Haven Shift

This shift towards safer assets like government bonds is not solely due to the rate cut. Concerns over the UK's economic health, highlighted by the stagnation of the gross domestic product in the third quarter of 2024, have also played a crucial role in driving investors towards gilts, thereby pushing their prices higher and yields lower.