UK gilt market looks fully valued but corporates attractive

ON BONDS

There is something odd about the fact despite the UK having one of the largest budget deficits in the OECD, UK gilt yields have fallen to record lows amid buying from risk-averse investors.

This has been great news for gilt investors in the longer end of the yield curve who have benefitted from strong capital gains but with yields down at such low levels it is hard to believe this trend has much further to go. Convulsions in the European sovereign debt markets are threatening to tear the eurozone apart, but ECB officials and eurozone politicians seem incapable of putting together a solution to the crisis. Consequently, the UK gilt market is seen as a safe haven due to more credible plans to reduce the budget deficit, combined with the flexibility of being able to control o...