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Bond yields fall amid concerns of double dip recession

The yield on 10 year government bonds fell to record lows yesterday in the UK amid signs that the UK economy is poised for a significant downward turn. This is the latest knock on effect of recent comments from MPC members in relation to a possible double dip recession in the UK. As a consequence, Bank of England growth forecasts for 2010, 2011 and beyond are now being called into question.

Government bond yields hit an intraday low of 2.839% with many investors now believing that UK base rates will remain at around 0.5% for the foreseeable future. Bizarrely, yesterday's fall in government bond yields will reduce the cost of servicing UK debt and raising finances in the future. However, only six months ago UK government bond yields hit a 16 month high amid concerns that the UK government could be forced to default on sovereign debt repayments.

While there is little chance that the UK government will default on sovereign debt repayments there is a greater chance that inflation will continue to rise, public debt will grow and some believe that the UK credit rating could be under pressure.

This is turning out to be one of the most difficult economic puzzles to solve!

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