Gilts initially rose on Wednesday as investors reacted favourably to a largely unchanged forecast for gilt issuance in the pre-Budget report.
But the small print failed to outline how the Government was planning to cut borrowing which prompted fears among investors that Britain’s AAA credit rating would be downgraded, resulting in the price of gilts plunging.
A fall in the price of gilts increases the yield, which determines annuity rates. As such, annuity rates should increase, if the lower price continues. Yields for 10 year gilts have soared 8.1 per cent in under two weeks and jumped 4 per cent yesterday.
Hargreaves Lansdown pensions analyst Nigel Callaghan says: “The price of gilts has fallen through the floor.
“The market is spooked by the Government debt and the fact there is no credible plan to begin bringing the budget under control.
“This should be very good news for annuities because the fall is so dramatic.”
But Callaghan says it may be a temporary blip.
He says: “Rates in the short-term should go up if this continues but it could be a temporary blip. Annuity rates are bonkers at the moment. They are surging and falling in ways they have just never done before.
“It must be a nightmare for the pricing actuaries. This used to be a sleepy world now there are typically several rate changes a week.
“This week, gilt prices have fallen so rates should increase but who knows what will happen next week.”