10 year gilt yield drops to record low

The UK 10 year yield has dropped to record low of 1.224 percent today, surpassing a previous bottom made in February.

Why are the Gilts rallying?

• Weak job report from the United States has triggered a rally in the global bond market in a hope that central banks’ stimulus will remain over  a much longer horizon. Market participants are now pricing that U.S. Federal Reserve will be able to hike rates, only once this year and that in December.
   
• In addition to that, European Central Bank (ECB) began purchasing corporate bonds from yesterday and that may have renewed a run for fixed income instruments.
   
• In a world, where more than $10 trillion worth of bonds are trading in the negative, UK fixed income securities are among the very few in the developed market, offering a positive return.
   
• Most importantly, Gilts are among the very few instruments in the  UK, which bears a lesser risk in the event of an exit. If exit occurs, Gilts will rally due to safe haven status and in expectations that Bank of England (BOE) will reduce rates. If the UK stays, Gilts might lose but it won’t be large unlike equities or currencies.