Bank of England's Decision Impacts Gilt Yields

Following the Bank of England's announcement to lower the key interest rate by a quarter of a percentage point to 4.5%, the yields on UK government bonds, known as gilts, experienced a significant drop. This move reflects the central bank's response to ongoing economic challenges and aims to stimulate economic activity.

Economic Stagnation Fuels Safe-Haven Asset Shift

Recent data indicating that the UK's gross domestic product remained stagnant in the third quarter of 2024 has further influenced the shift towards safer assets like government bonds. This economic stagnation, coupled with the looser monetary policy, has led to an increase in gilt prices and a corresponding decrease in yields, as investors seek stability amidst uncertainty.

Gilt Yields Reaction

Specifically, the return on the 10-year gilt fell by 4.9 basis points to 4.391%, while the yield on the two-year gilt declined by 5.4 basis points to 4.0900%. Similarly, the return on the 30-year gilt decreased by 3.8 basis points to 4.993%. These changes underscore the market's reaction to the Bank of England's policy adjustment and the broader economic landscape.