Gilt yields drop as investors rush to safety

Gilt yields slid on Monday, with investors rushing to safety as the collapse of Silicon Valley Bank continued to rattle markets.

At 1110 GMT, the 10-year yield on gilts was down 13 basis points at 3.50%, while the 2-year yield on gilts was 16 basis points lower at 3.45%, as investors scaled back Bank of England and Federal Reserve rate hike expectations in the wake of the SVB drama.

Victoria Scholar, head of investment at Interactive Investor, said: "Last week analysts were divided over the chances of a 25 or 50 basis point rate hike from the Federal Reserve at its next meeting this month. However, it looks like the 50 basis point move is very likely to be off the cards altogether given the negative economic impact and the effect on sentiment from the SVB fallout.

"The Fed could even potentially opt for no change to interest rates whatsoever as the central bank keeps a close eye on the risk of any contagion effects from SVB’s collapse.

"In the UK, interest rate futures are now pricing in a roughly 25% hance that the Bank of England does not raise rates at its March meeting in what could be a significant near-term change in policy direction."

Gilt yields move inversely to prices.