Gilt prices jump to two-year high

Gilt prices jumped to a two-year high on Monday amid signs that investors were becoming more confident in the British economy.

The yield on the benchmark 10-year gilt was 1.39%, down from 1.48% at the end of last week but up from 1.23% on Monday last week. The yield is a key measure of investor confidence in a government's ability to repay debt.

The rise in gilt prices reflects rising confidence in the economy as well as speculation that the Bank of England will start raising interest rates later this year, said Laith Khalaf, senior analyst at Hargreaves Lansdown .

"Investors are piling back into Gilts as they perceive less risk in holding UK government debt, which is pushing yields lower," he said. "This is also being helped by expectations that the Bank of England will start to raise interest rates later this year, which will make Gilts more attractive than alternatives such as corporate bonds and equities."

The Bank of England has said it expects to start raising interest rates "in the coming months" if the economy continues to recover following the vote to leave the European Union.

Is gilt the new gold?

In the investment world, there are a few key terms that any novice should be familiar with. These include stocks, bonds, and mutual funds. However, in recent years, a new term has begun to creep into investor vocabulary: gilt. So what is gilt? And is it a good investment?

Gilt is simply another word for government bond. A government bond is a type of security that is issued by a government as an IOU to investors. When you purchase a government bond, you are lending money to the government in exchange for interest payments. The key difference between government bonds and other types of securities is that the issuer (in this case, the government) is considered to be extremely creditworthy. This means that in the event of a default, government bonds are among the safest investments around.

The appeal of government bonds lies in their stability and predictable income stream. In addition, because they are considered low-risk investments, they offer relatively low yields when compared to other types of securities. However, given the current state of the global economy, many investors are looking for safe havens and are turning to government bonds as a way to preserve their capital.

So should you invest in gilts? That depends on your individual financial situation and risk tolerance. Gilt yields vary depending on the country issuing the bond. For example, US Treasury notes have yields of around 2%, while UK Gilts have yields of around 3%. If you are comfortable accepting some level of risk in order to potentially earn higher returns, there are other types of securities that may be a better fit for you than government bonds. However, if you are looking for a safe investment with little downside risk, gilts may be just what you're looking for.

Are bonds the new gilts?

Governments have long used bonds as a way to borrow money, but in recent years there has been a shift away from government bonds (known as gilts in the UK) towards corporate bonds. This shift has been particularly notable in the UK, where the amount of corporate bond issuance has overtaken gilt issuance for the first time.

There are a number of reasons for this shift. Firstly, corporate bond yields have been much lower than gilt yields in recent years, making them an attractive investment. Secondly, there has been a lot of private sector deleveraging since the financial crisis, which has led to a shortage of credit available to businesses. This has made corporate bonds an attractive option for investors who want to invest in companies but don't want to take on the risk associated with lending directly to those companies.

The popularity of corporate bonds has led to a number of changes in the market. For example, there is now a very large market for investment-grade corporate bonds, with over $2 trillion worth of these bonds currently outstanding. This has made it easier for companies with high credit ratings to issue debt, and has prompted some companies to issue bonds instead of raising money by issuing shares.

The growth of the corporate bond market is likely to continue in the years ahead. With interest rates likely to stay low for the foreseeable future, corporations will continue to find it attractive to borrow money by issuing bonds rather than by issuing shares. The trend towards corporate bond issuance is likely to be particularly strong in Europe, where economic conditions are still fairly weak.

Government bonds outperform gilts in 2012

British government bonds outperformed gilts in 2012, returning 7.7% compared to 5.4% for Gilts, according to data from JP Morgan.

The outperformance of government bonds was due to falls in government bond yields, which reached record lows during the year. Ten-year government bond yields fell from 2.1% at the start of the year to 1.4% by the end of December, while five-year yields fell from 1.5% to 0.9%.

Gilt yields fell as investors sought safe havens amid concerns about the Eurozone debt crisis and the US fiscal cliff. The Bank of England also pledged to keep interest rates low until at least 2016, boosting demand for government bonds.

Despite the strong performance of government bonds in 2012, there are concerns that prices may have become overvalued and that yields could rise in 2013 as economic conditions improve.

Gilt yields hit record low as investors pile in

The 10-year U.S. Treasury note yield dropped to a record low of 1.366 percent on Tuesday, as investors piled in to buy government debt amid global growth worries.

Demand for government debt was strong around the world, with the 10-year German bund yield hitting a new low of 0.072 percent and the Japanese yen hitting a three-month high against the dollar.

"This is a safe-haven trade," said Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York. "The market is pricing in more risk aversion and slower global growth."

The flight to safety also helped push up the prices of gold and silver, with gold reaching a five-month high.

The selloff in risky assets comes after weak economic data from China and Europe raised fears that the global economy may be slowing down faster than expected.