Yields on ten year gilts breach 4.5%

Yields on benchmark UK government bonds have risen more than four-fold during 2022

Jonathan Stapleton
clock • 2 min read
Yields on ten year gilts breach 4.5%

Yields on benchmark 10 year government bonds have risen again after surging by over 40 basis points to 4.282% yesterday.

At the start of trading today, yields dropped to 4.034%, before rising throughout the day to 4.519% by 4:40pm.

According to data from Refinitiv IFR Markets, yields on benchmark 10-year gilts rose from 0.974% at the beginning of this year to 2.803% at the end of August. This month they had risen to 3.139% at the end of 16 September and 3.495 at the end of 22 September, the day before the chancellor's Mini Budget.

By the close of last Friday, yields had spiked to 3.827 and yesterday rose significantly further to 4.282% by the end of the day.

Yields on long-dated gilts saw an even more substantial rise - with the yield on 25 year paper increasing from 3.841% at the end of last Thursday to 4.637% at the end of yesterday. At 4:40pm this afternoon, 25-year yields stood at 5.007%.

 

Standard Life senior business development manager Matt Richards said gilt yield increases will, in many cases, have had a positive impact on scheme funding positions - something that will have made insurance more affordable and the possibility of buyout seem closer than in previous years.

He said: "We expect trustees will be weighing up whether to take advantage of these favourable market conditions and lock-in some of the most competitive pricing in years to ensure security for their members.

"While it is not clear how long this window of opportunity will last, Sponsors and Trustees are likely to want to act now while funding levels are high. This is likely to increase demand in the BPA market during what has already been an active year to date for the sector with around £12 billion of transactions in the first six months."

Commenting yesterday, XPS Pensions chief investment officer Simeon Willis said the "unprecedented" surge in gilt yields this morning on top of those seen on Friday would have improved UK pension scheme funding levels "by a greater quantum than a whole year's deficit removal contributions".

But he warned that liability-driven investment (LDI) managers were begining to flag new emergency collateral calls - a trend he said was likely to continue over the coming days.

Barnett Waddingham partner Ian Mills agreed - noting the gilt market had suffered an "allergic reaction" to the Mini Budget reflecting increasing expected future supply of gilts, combined with fears that the tax cuts will add further fuel to the inflationary fire.

Mills also thought the falls in liabilities could cause significant challenges, especially for schemes with LDI portfolios - urging schemes using LDI to "immediately review" whether their collateral buffers remain adequate, and consider taking remedial action if not.

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