Bond prices are falling – will blue-chip stocks be next?

October 19, 2016 | 4years | Investment News

The price of British government bonds is finally falling, with the result that yields – the income paid by bonds relative to their price – are on the rise.

The 10-year government bond (or “gilt”) is taken as the barometer for the market. Yields on 10-year gilts have almost doubled since August. At 0.5pc in mid-August, they now stand at more than 1pc.

Concern about Britain’s negotiations on leaving the EU has rekindled fears about how the economy will fare throughout and after the process, prompting the value of sterling to plummet. Overseas owners of bonds have in turn sold their holdings, pushing prices down.

Theresa May hinted last week that the policies of “quantitative easing” and low interest rates might end sooner than many expected. QE involved the “creation” of electronic cash with which to buy government bonds, keeping their prices high and pushing their yields low. Mrs May said a new approach was needed.

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