Duncan’s Economic Blog

A Public Service Post: UK Bond Market, where to get data and what it means.

Posted in Uncategorized by duncanseconomicblog on June 22, 2009

I’ve written a fair bit about gilt yields over the past few months. I’m getting quite few hits from people searching for data/information/graphs on this issue.

Whilst I’m delighted to get their attention, I think they might be disappointed if what they are looking for is simple hard data. So, in the spirit of public service blogging, here’s a quick guide to where to get info on government bonds and how to read it.

The simple best resource, updated through the day, is this Bloomberg page.

How to read the table:

The first column is simple – the maturity of some government debt – so three months, 7 years, whatever. The key ones to look at tend to be 2 years, 10 years and 30 years.

The second column gives the ‘coupon’, i.e. the set payment from each maturity of debt. So, for example 5 year bonds have a set payment of 5.00.

The third column just gives the date on which the debt is to be settled. So the five years mature on 09/07/2015.

The fourth column is the interesting one. It gives to numbers separated by a slash. The first gives the current price of the debt (the debt is always issued at ‘100’). The second gives the current yield.

Think of it this way, if we issue a 10 year bond at ‘100’ with a annual coupon of 10.0% and the price of the bond goes to ‘200’, then the current yield will only be 5%, not 10%. As the coupon is fixed – you get ‘10’ annually from something you paid ‘200’ for.

Now actually it gets a little more complex than that, as the debt will always be repaid at a ‘par’ value of 100. So the second number gives the current yield accounting for this factor.

So to stick with the five years the current figures (at time of typing) are 111.23/2.67. So the price of a UK five year bond is ‘111.23’ and the annual yield is currently 2.67%.

The fifth column shows the change on the day. Again the first number (before the slash) is the price and the second number is the yield. This two numbers always move inversely – if the price rises the yield falls and vice versa. What we like, from a public finance point of view is to see the price going up and the yield coming down.

Today, on the five years, we can see that the price has risen by 0.081 and the yield has therefore fallen by 0.017. Five year debt today has an interest rate 0.017% lower than the day before.

If you start checking this page regularly, you’ll see that moves of more than 0.05% a day are comparatively rare. You can use the tabs at the top of this page to check out the debt of the US, Japan, Hong Kong, Germany, Brazil and Australia too.

Finally, if one scrolls down the page there is a graph. This shows the ‘yield curve’ of UK debt. This is a simple graph plotting the yield of different maturities. What matters with yield curves is the shape of the curve and the steepness.

For those really interested, I’d recommend following them links from Investopedia’s article on the curve.

To summarise though:

The shape of the yield curve is closely scrutinized because it helps to give an idea of future interest rate change and economic activity. There are three main types of yield curve shapes: normal, inverted and flat (or humped). A normal yield curve (pictured here) is one in which longer maturity bonds have a higher yield compared to shorter-term bonds due to the risks associated with time. An inverted yield curve is one in which the shorter-term yields are higher than the longer-term yields, which can be a sign of upcoming recession. A flat (or humped) yield curve is one in which the shorter- and longer-term yields are very close to each other, which is also a predictor of an economic transition. The slope of the yield curve is also seen as important: the greater the slope, the greater the gap between short- and long-term rates.

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