UK Market Safer Than US According To Bond Investors

The willingness of the Bank of England to boost the economy through monetary stimulus has encouraged bond investors to consider the UK a safer haven than the US.

 

Yesterday the price of 10-year UK government bonds rose again, with yields correspondingly dropping to 1.47%. With 10-year US government bonds at 1.48%, this indicates that investors now consider the UK marginally safer than the US.

 

Two weeks ago the Bank of England agreed upon a quantitative easing programme of ￡50 billion, or nearly $80 billion.

 

On Wednesday the minutes of these meetings were released, revealing that the Monetary Policy Committee had actually considered ￡75 billion, or more than $115 billion of quantitative easing.

 

This news reassured bond investors further, as they seek a safe place to park their capital.

 

Quantitative easing involves the Bank of England printing money for the purpose of purchasing government bonds from financial institutions, thus pumping money into the economy.

 

The UK central bank's entire quantitative easing program now stands at ￡375 billion, or $590 billion.

 

The recent move in the UK contrasts with the US; on Tuesday Chairman of the Federal Reserve Ben Bernanke downplayed suggestions of a new monetary stimulus program.

 

Independent bond market research firm Swordfish Research are quoted in the Guardian as granting the UK government some kudos for their monetary policy. 

 

However, the main reasons behind the UK retaining its status as a safe haven are seen as being historical: hundreds of years of debt repayment, a strong independent currency, and a central bank prepared to offer monetary stimulus.