Themes Carney takes over as the new Governor of the Bank of England UK governments austerity measures fail to deliver deficit reduction QE could lead to rampant inflation in the future UK growth misses forecasts UK loses AAA rating Unemployment in the UK running at around 8% In the last few years the Treasury has issued more debt than at any time. UK 10year yield close to all time low £ vulnerable in period of competitive devaluations QE central to policy elsewhere in the developed world
10 year gilt yield at historic low Source: Reuters EcoWin % 6065707580859095000510 -5 0 5 10 15 20 25 30 RPI 10Y UK – RPI vs 10Y
Investment grade spread versus US 10 year yield US IG YTM vs government bmrk YTM
Holdings in bond funds versus yields 0 10 20 30 40 50 60 70 80 03040506070809101112 NAHB Index Prospective Buyers £ Corporate bond FUM Vs UK 10Yr gilt yields Index Source: IMA, Bloomberg, 31 Jan 2013 Bond markets have benefited from a 20 year rally Ownership has increased throughout this period Life funds Pension funds Retail investors Inflation is now a threat Traditional bond funds exposed to market correction
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