background preloader


Facebook Twitter

What is the main criticism for using expansionary fiscal policy? What's the difference between a budget deficit and national debt? What is one example of a government borrowing money? Why do investors LOVE UK government bonds? How do investors know when these bonds are worth it? What is the flaw of the flat yield calculation? How do investors then take into account the flaw of the flat yield? What is the relationship between the price of a government bond, and the yield? Recent article on government bonds (June 2016) Image copyright AFP/Getty Images The return on benchmark UK government bonds has fallen to a record low as investors move in to safer assets on concerns about the global economy.

The yield on the UK's 10-year gilt dropped below 1.25% for the first time. The yield on the German equivalent also sank to a record low. More buyers cause bond values to rise and yields to fall, hitting annuity rates, pension fund income, and debts. Analysts see it as a "pessimistic" sign. "The low yield on government bonds paints a pretty pessimistic picture of the global economy, and suggests we are set for an extended period of low or negative inflation, and weak economic performance," said Hargreaves Lansdown analyst Laith Khalaf. Thin trading Investors have been worried about a weakening Chinese economy, the outlook for US interest rates, and the UK's pending EU referendum vote.

But yields have been falling for months. 'Slipping fast' "The auction process shows large bidder participation.

Yield curves

What is the 'crowding out' effect?