UK government bonds are on the up after expectations for a rise in interest rates were doused by drab inflation figures. Yields on two-year debt now stand at the lowest in three weeks, just above the base rate of interest.
The downward shift partially unwound the recent rise in two-year yields, which tipped above the 0.25 per cent base rate in late June for the first time in eight months. (Lower yields reflect higher prices, and vice versa.)
Today’s inflation underperformance alleviates pressure on policymakers to raise rates from their current record low.
Two-year yields dipped by five basis points to 0.265 per cent, before ticking slightly upwards to 0.278 per cent, after the UK’s inflation rate fell for the first time since October last year, defying expectations of no change in June.
The yield on 10-year debt also dropped by five basis points, hitting a low of 1.228 per cent before rising to 1.238 per cent.