Yields on 10-year gilts rose to 2.2 per cent this week, the highest for 11 months. But, while 10-year conventional gilt yields have risen by 0.7 percentage points since the summer, yields on their index-linked counterparts have fallen by 0.3 percentage points.
The fact that real yields have fallen tells us that gilt yields have not risen because the global savings glut and shortage of safe assets have diminished; if they had, real yields would have risen. It also tells us that markets are relaxed about the possibility that rating agencies might soon cut the government's credit rating from its present AAA grade. Such a prospect, says Sam Hill at RBC Capital Markets, "is priced in".