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Structural weakness: why are gilt yields near record lows?

Index-linked gilt yields are still near record lows despite the economic recovery, which tells us that the world economy is still structurally weak
Structural weakness: why are gilt yields near record lows?
  • Signs of economic recovery have not raised Index-linked gilt yields yet.
  • This reflects long-standing global factors such as the shortage of safe assets and weak economic growth.

The UK economy is recovering well. Since November real GDP has risen 3.5 per cent; the number of workers on payrolls has risen 1.5 per cent; and cyclical shares have soared.

One big asset class, however, doesn’t seem to have realised this – index-linked gilts. Yields on five-year linkers have actually fallen slightly since November and are still close to record levels. Which is odd, because an economic recovery should reduce demand for safe assets and so raise yields.

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