Bonds rise following interest rate freezes.

The European Central Bank (ECB) and the Bank of England (BoE) have left interest rates unchanged today and that has translated in positive effects on bonds and gilt yields.

U.K. government bonds have increased for five consecutive weeks and this trend has been accentuated by the Bank of England’s decision to not cut interest rates further in order to curb inflation.

Gilts have risen, whilst two-year yields are at a three-week low, as the drop in stocks has happened as investor search for the safest assets to invest in.

This has translated in changes in yields as the two-year note fell 13 basis points to 4.30 percent whilst the price of the 4.75 percent security for 2010 gained 0.25

The two-year yield earlier dropped 18 basis points to 4.27 percent, the lowest level since April 18, although it may slip to 4.25 by the end of the summer.

The 10-year gilt yield dropped 8 basis points to 4.62 percent, the biggest decline since Feb. 29. Yields move inversely to bond prices.

European government bonds also remained high as investors overlooked the European Central Bank’s focus on the outlook of economic growth.

Analysts have attributed the rise in bond prices not as a direct reaction to the interest rates but rather due to the currents trends in the market, which is showing signs of recovery.

Story link: Bonds rise following interest rate freezes.