British 10-year government bond yields edged downward to a fresh two-and-a-half year low on Friday after US jobs growth slowed sharply and wages rose less than expected, increasing bets that the Federal Reserve will cut interest rates.
The 10-year gilt yields hit a nadir of 0.808% at 1534 GMT, down 2 basis points on the day and the lowest since October 2016, as investors sought the safety of British bonds.
The 10-year gilt has shed 40 basis points in the past month, due to concerns that US-China trade tensions will slow the global economy, as well as ongoing fears of a disorderly Brexit.
Financial markets now price in an almost 60% chance that the Bank of England will cut interest rates over the next 12 months, despite the BoE saying it is likely to raise rates gradually if Britain leaves the European Union smoothly this year.
"Even at the best of times it is hard to see government bonds for purely their return attractions - especially when yields are so low - but they do provide an effective hedge against negatively performing equities," Chris Iggo of fund manager AXA wrote to clients on Friday.
Adjusted for expected inflation, British government bond yields are already at a record low. Ten-year inflation-linked gilts offer a negative real yield of -2.58%, and price in average retail price inflation of 3.47% over the period, the highest in at least a decade.
Bank of England data earlier on Friday showed the public expect inflation in five years' time to reach 3.8%, the highest reading since this question was first asked in 2009.
Bond strategists describe the rising inflation premium in British government bonds as a proxy for political risk and the danger that Britain will not leave the EU in an orderly way on October 31, triggering a further fall in sterling.
Comments
Comments are closed.