Brexit risks means investors can’t get enough of government debt
The demand for government debt was its strongest for more than three years in the second post-referendum auction of UK bonds held this morning.
Investors jumped at the opportunity to get their hands on the safe haven 10-year bonds, with demand for the £2.25bn worth of coupons on offer outstripping supply by 2.3 to one.
Read more: What does Brexit mean for the public finances?
This was up from a bid-to-cover ratio of 1.79 in the most recent auction for the benchmark 10-year government debt held in early May, and the highest since January 2013.
Yields on government debt have been tumbling over the last year as the risk of a global slowdown spiked and the EU referendum raised the prospect of the Bank of England slashing interest rates. Markets put the chances of the Bank of England cutting its base rate from 0.5 per cent to 0.25 per cent when the monetary policy committee (MPC) meets next week at 78 per cent.
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The average yield on the bonds bought today was 0.91 per cent – well-off the 1.66 per cent investors demanded in May's auction.
The Debt Management Office (DMO), which handles the auctions, postponed debt sales around the referendum for fear liquidity would dry up. Despite the UK losing its AAA credit rating and the risk of a default rising, yields on government debt are still reaching new record lows almost every week as the prospect of a slowdown looms.