As of December 1022, all United Kingdom government debt securities were returning positive yields based on the instantaneous nominal forward price of more than one percent, regardless of maturity. This places the yield of both UK short term bonds and
long term bonds above that of major countries like Germany, France and Japan, but lower than the United States.
What are government bonds?
Government bonds are debt instruments where a certain amount of money is given to the issuer, in exchange for regular payments of interest over a fixed period. At the end of this period the issuer then returns the amount in full. Bonds differ from a regular loan through how they can be traded on financial markets once issued. This ability to trade bonds makes it more complex to measure the return investors receive from bonds, as the price they buy a bond for on the market may differ from the price the same bond was initially issued at. The yield is therefore calculated as what investors can expect to receive based on current market prices paid for the bond, not the value it was issued at. In total, UK government debt amounted to over 2.3 trillion British pounds in 2021 – with the majority being comprised of different types of UK government bonds.
Why are inverted yield curves important?
UK government bond yields over recent years have taken on a typical shape, with short term bonds having a lower yield than bonds with a maturity of 10 to 20 years. The higher yield of longer-term bonds compensates investors for the higher level of uncertainty in the future. However, if investors are sufficiently worried about both a short term economic decline, and low long term growth, they may prefer to purchase short term bonds in order to secure assets with regular interest payments in the here and now (as opposed to shares, which can lose a lot of value in a short time). This can lead to an inverted yield curve, where shorter term debt has a higher yield. Inverted yield curves are generally seen as a reliable indicator of a recession, with inverted yields occurring before most recent U.S. recessions. The major exception to this is the recession from the coronavirus pandemic – but even then, U.S. yield curves came perilously close to being inverted in mid-2019.
Government bond yields curve (nominal forward) in the United Kingdom as of December 2022
The source adds the following information: "Yields are interpolated by the Treasury from the daily yield curve. This curve, which relates the yield on a security to its time to maturity is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. These market yields are calculated from composites of indicative, bid-side market quotations (not actual transactions) obtained by the Federal Reserve Bank of New York at or near 3:30 PM each trading day. The CMT yield values are read from the yield curve at fixed maturities, currently 1, 2, 3 and 6 months and 1, 2, 3, 5, 7, 10, 20, and 30 years."
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Bank of England. (January 3, 2023). Government bond yields curve (nominal forward) in the United Kingdom as of December 2022 [Graph]. In Statista. Retrieved February 07, 2023, from https://www.statista.com/statistics/1118682/yield-curve-united-kingdom/
Bank of England. "Government bond yields curve (nominal forward) in the United Kingdom as of December 2022." Chart. January 3, 2023. Statista. Accessed February 07, 2023. https://www.statista.com/statistics/1118682/yield-curve-united-kingdom/
Bank of England. (2023). Government bond yields curve (nominal forward) in the United Kingdom as of December 2022. Statista. Statista Inc.. Accessed: February 07, 2023. https://www.statista.com/statistics/1118682/yield-curve-united-kingdom/
Bank of England. "Government Bond Yields Curve (Nominal Forward) in The United Kingdom as of December 2022." Statista, Statista Inc., 3 Jan 2023, https://www.statista.com/statistics/1118682/yield-curve-united-kingdom/
Bank of England, Government bond yields curve (nominal forward) in the United Kingdom as of December 2022 Statista, https://www.statista.com/statistics/1118682/yield-curve-united-kingdom/ (last visited February 07, 2023)
Government bond yields curve (nominal forward) in the United Kingdom as of December 2022 [Graph], Bank of England, January 3, 2023. [Online]. Available: https://www.statista.com/statistics/1118682/yield-curve-united-kingdom/