Investors in a quandry over gilts

THE LEADER

If you had not noticed yet, the staid world of gilts has become sexy.

Investors succumbing to the allure of UK sovereigns depressed yields to just above 3% ahead of the Bank of England’s quarterly inflation report last week. Buyers eased off on the accelerator on Tuesday, and sold modestly as BoE Governor Mervyn King revealed July inflation hit 3.1%. However, the 1bp or 2bp rise in yields across the curve barely reversed the prevailing trend. Five-year gilt yields have dropped, on average, by 11bp on the days the previous nine BoE inflation reports were published. The two reports this year helped investors in 10-year UK sovereigns to pocket about 10% to...