UK economy fears raise gilt prices, lower yields

In the UK on Wednesday, gilt prices rose and yields dropped on a Bank of England report that forecast weaker growth of the economy.

The report raised the possibility that the interest rate would be cut by the end of the year. 2-year gilt yields were down nearly 10 basis points to 4.378 percent, while yields on the 10-year gilt fell 6.9 basis points to 4.435 percent, and 30-year yields were down 6.7 basis points to 4.381 percent.

Meanwhile, in the United States, concerns about shifts in the derivatives markets overcame the possible negative influences of a very strong trade deficit report to send yields on US Treasury bonds down in late-morning trading on Wednesday.

Government bonds were also helped as the perception of them as a safe investment in the wake of the downgrade of General Motors and Ford continued. Yields on 5-year bonds fell 2.7 basis points to 3.876 percent before Treasury’s sale of $15 billion in new bonds.

Longer-dated bonds were effected by news of a bankruptcy court’s decision to allow United Airlines to transfer its pension responsibilities to the Pension benefit Guaranty Corporation. Yields on 30-year bonds fell 5 basis points to 4.52 percent.

In Asia, yields on 10-year Japanese government bonds were down 1.5 basis points to 1.275 percent.

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