Long-run UK government bond yields have fallen to their lowest levels since records began in 1703 due to a further increase in global demand for safe-haven assets. This increase in demand has more than offset any adverse impact on gilt yields from the recent poor run of monthly public borrowing figures or the decision by the Monetary Policy Committee (MPC) not to announce further asset purchases at its meeting in May. Given our view that inflation will fall sharply, the MPC will restart QE later this year and the euro-zone will not survive in its current form for much longer, we doubt that gilt yields have found a floor yet.
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