Pension fund demand is impacting on gilt yields

A gilt bubble appears to have emerged over the past three years, with the price of long dated gover...

A gilt bubble appears to have emerged over the past three years, with the price of long dated government securities rising while yields have fallen. Quentin Fitzsimmons, manager of the Threadneedle Absolute Return Bond fund, says gilt yields are currently below rational expectations relative to other asset classes. However, he adds, structural demand is set tocontinue for some time unless regulations on capital adequacy are reviewed. "Pension fund deficits are calculated using long-dated bond yields," he says. "Low yields reduce the discount rate used to calculate future returns on asse...