New data published today has heightened fears around Britain’s economic outlook, with Britain’s yield curve “inverting” as two-year yields trade more than 0.15 percentage points above their 10-year counterparts, increasing fears to highest levels since the 2008 global financial crisis.
Short-term UK bonds sold off significantly today as inflation data increased expectations for Bank of England rate rises.
Two-year gilt yields swelled 0.24 percentage points to 2.39 percent and longer-term bonds felt a less significant selling squeeze, with the 10-year yield climbing 0.11 percentage points to 2.23 percent.
Resultantly, two-year yields traded more than 0.15 percentage points above 10-year yields.
A yield curve describes a graph showing the relationship between the maturity of bonds and the yields they achieve. While one axis depicts the length of time until a bond matures, the other shows the annualised yield on the security.
The curve will generally slope upwards, reflecting how investors tend to be rewarded with higher yields in return for locking into debt for more extended periods.
A flattening or even inversion of the yield curve means that investors receive little or no compensation for holding on to debt for longer. The curve inversion is often seen as an indicator of a slowdown or recession.
The UK’s inflation rate grew to 10.1 percent in July, caused by the higher cost of food. The increase in the consumer price index, above economists’ expectations of 9.8 percent, increased from a 9.4 percent rate in June.