Safe-haven flight drives gilts to record lows
Investors desperately searching for a safe haven pumped money into UK gilts today, driving yields down to record lows.
The latest squalls in the sovereign debt storm gripping the eurozone sent yields on the UK's benchmark 10-year bonds down to 2.198% as traders sought shelter in gilts, German bonds and US Treasuries.
The picture was far different for Italy and Spain who saw their borrowing costs rise despite a European Central Bank campaign to buy up their debts.
The Organisation for Economic Co-operation and Development's prediction last week that the UK economy would virtually grind to a halt in the second half of this year underlined the bleak prospects at home, but investors reckon UK bonds are a better bet than taking their chances in hugely volatile equity markets.
Yields on US Treasuries - seen as the world's risk-free asset - also plunged to a record low, and the dollar strengthened as investors moved into the US currency to buy them. Sterling fell 0.6c to £1.5822 against the greenback and the euro also lost ground.
Lee McDarby, an analyst with Investec, said: "The fact that GBP/USD is on the cusp of a dip down through 1.58 highlights how the greenback is dominating the markets at the moment."
