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10 March 2017 last updated
Latest 15-Year Gilt Yields
Annuity rates are based on gilt yields and in particular the 15-year gilt yield is a key indicator of the likely direction for annuities in the future and should be followed by any pensioner retiring now.

Since the recent financial crisis developed in June 2008 investors have moved their funds to the safety of government bonds and gilts and this has increased the price thereby reducing the yields significantly. The impact on annuity rates has been dramatic although there are signs that gilts are now improving.

After reaching an all time low yield of 1.68% on 30 January 2015 they made a recovery over the next few years. Yields have reduced to a new all time low of 1.31% on 1 July 2016 following the Brexit vote in the EU Referendum and a statement made by the governor of the Bank of England.

Factors such as the Federal Reserve and the Bank of England changing interest rates will have an impact on annuities sending rates higher or lower.
 
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15-Year Gilt Yields 15-Year Gilt Yields
The 15-year gilt yields have a significant effect on annuity rates which we update daily.

Annuity rates are based on the 15-year gilt yields and are an important indicator of the likely direction for annuities. As a general rule a 20 basis point change (or 0.20% change in the actual yield) results in a 2.0% change in annuities.

Last month the the 15-year gilt yields last month changed from 1.79% to 1.50% or 29 basis points.

Find out more details:
monthly analysis of annuities and gilt yields


Fig 2 below shows the daily 15-year gilt yield starting the month at 1.50% and the change from the previous day's close:


15-Year Gilt Yields - March 2017
Day Rate (%) Change (bp*)
1 1.54 +4
2 1.56 +2
3 1.55 -1
6 1.57 +2
7 1.55 -2
8 1.57 +1
9 1.58 +1
10 1.59 +1
13 1.61 +2
14 1.59 -2
15 1.58 -1
16 1.60 +2
17 1.60 0
20 1.59 -1
21 1.61 +2
22 1.53 -8
23 1.59 +6
24 1.55 -4
27 15.2 -3
28 1.54 +2
29 1.51 -3
30    
31    
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points

Table 1 above shows the 15-year gilt yields started the month at 1.79%. For the latest updates on how this affects annuities see Annuity Rates Review.


Economic events influencing gilt yields

The election of Donald Trump to US President in November has seen investors sell bonds and gilts increasing yields. The expectation is for higher infrastructure spending increasing inflation and the Federal Reserve raising interest rates.

In October 2016 a combination of factors is driving yields up to close at 1.61%, the highest level since the EU Referendum. Investors anticipate the Federal Reserve are likely to increase interest rates before the end of the year. The Bank of Japan and Europe Central Bank are reaching the limit of buying long-term government bonds and this is helping a selloff in bonds. OPEC are close to agreeing a deal to cut the supply of crude-oil which may see the price rise from the current level of $50 a barrel and this could push up inflation.

The 15-year gilt yields reached another all time low of 0.90% on 11 August 2016.

The Brexit vote has resulted in the 15-year gilt yields reducing by 52 basis points reaching an all time low of 1.41% on 30 June 2016. The governor of the Bank of England announced measures for a further £250 billion of Quantitative Easing (QE) should this be required and possible reduction in interest rates from the current all time low level of 0.5% since 2009.

Uncertainty over the 2016 EU Referendum and the possibility of a Brexit vote has seen investors seek the safe havens of bonds and gilts sending the prices higher and yields lower.

In April 2016 European Central Bank (ECB) President Mario Draghi has hinted on reducing deposit interest rates sparking a sell off of global bonds and a 14 basis point rise in the 15-year gilt yields.


Volatility in February due to fear of a global slowdown sends yields to a low of 1.68% before recovering back to 1.92%. In January 2016 the 15-year gilt yields reduced 36 basis points as investors seek safe havens following fears of over a slowdown in China and lower oil prices sending equity markets lower.

The Federal Reserve in October 2015 hinted on increasing interest rates in December sending yields 13 basis points higher to end the month at 2.23%.

Uncertainty with a Chinese economic slowdown and Federal Reserve unclear decision over interest rates in September sends yields to a lower level of 2.12%.

Yields have increased from the recent level of 1.97% to as high as 2.35% following investors dumping US Treasury notes, German Bunds and UK government gilts at the beginning of June 2015. This follows improved economic data from Europe and the Federal Reserve delaying an increase in interest rates until later in the year.

The 15-year gilt yields reduced by 98 basis from 2.66% at the end of October to 1.68% on 30 January 2015, the lowest ever level.

This was due to economic factors such the ECB is to starting a €1.1 trillion stimulus programme of quantitative easing buying corporate bonds and sovereign debt as well as uncertainty such as the falling oil prices, deflation in the Eurozone, poor economic data from China and high interest rates from Russia.

The Federal Reserve finally ended quantitative easing in November 2014, 6 years after it started tapering the $85 billion a month programme back in 2008. The 15-year gilt yields have not reacted to the announcement as the effect of no stimulus had been discounted by the market by December 2013 when yields reached 3.47%.

Increasing uncertainty in Ukraine over Russian intervention, conflict in the Middle East threatening military action from Western economies and the threat of deflation in the Eurozone requiring action from the ECB in the form of Quantitative Easing have seen investors transferring investments to safe havens. The 15-year gilt yields have reduced 51 basis points from 3.21% on the 4 July to 3.70% by 31 August 2014.

The Governor of the Bank of England Mark Carney has stated that interest rates will be kept at the current rate of 0.5% for some considerable time when the market expected rates to increase by the end of this year. The 15-year gilt yields reduced from from 3.20% to a low for this year of 3.03%.

In December 2013 the Federal Reserve reduced the $85 billion a month stimulus package by $10 billion to $75 billion after a series of positive US economic data sending prices for bonds lower and yields higher. The US Fed has since aimed to reduced the stimulus by $10 billion per month to the current level of $25 billion a month.

In August 2013 the US Federal Reserve announced tapering of the stimulus package resulting in a sudden fall in equity and bond markets and a rise in yields. With Bank of England fixing interest rates to 0.5% until mid 2016 with the "forward guidance" policy markets immediately ignored this with further rises in yields. As growth returns to the Eurozone investors are moving funds away from safe havens such as bonds and gilts helping yields higher.

Investor confidence was knocked in July 2013 after the US Federal Reserve announced the end of the $85 billion per month of stimulus known as Quantitative Easing. This decreased the price of bonds and gilts deflating a bubble building in the market. As a result the 15-year gilt yields increased significantly to the benefit of people retiring.

In January 2013 the US managed to negotiate a deal between President Obama and the Republican House of Representatives over the fiscal cliff to avoid the implementation of $600 billion of spending cuts and tax rises. This avoids the US heading back into recession and has boosted market confidence resulting with investors moving funds away from safe havens such as UK government gilts to higher yielding investments thereby reducing the price and increasing the yield of gilts. This is likely to increase annuity rates in due course.

Gilt yields decreased in July 2011 due to the UK government injecting £50 billion of funds into the economy using Quantitative Easing (QE) as well as invest
or fear over Spain's debt which resulted in their 10-year bond yields increasing to 7.66%. This is beyond the 7% level that would trigger a sovereign bailout as seen in Greece, portugal and Ireland. At the end of October 2012 the Spanish yields had reduced to 5.5%.

Gilt yields stabilised as the European Central Bank (ECB) announced a plan to do "whatever it takes" to save the euro and buy sovereign debt of countries that need a bailout.

News related stories:
UK annuities could rise 5% as US bond selloff sends yields higher
Retirement annuity rates could fall as Bank starts more QE
Annuities to fall when the ECB's €1 trillion stimulus plan starts
Pension annuities remain unchanged as Fed stimulus is ended
Retirement annuity income remains 7% lower after slide in markets
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