18 months ago we took a look at what was a reasonable yield for long-dated gilts. We concluded that a yield of perhaps around 4% was a fair assumption.
Since that date we appear to have been too optimistic on our outlook on gilt yields; long dated nominal yields have fallen to around 2.5%, with real yields around -1.0%, and the forward curve is pricing in only modest increases to those figures in the future.
We start by considering if we were too optimistic. We believe the answer is no, but, and there is often a but, we may have to wait longer to get there – some of the downside risks we highlighted in our original note may be playing out. Reader beware; this note therefore doesn’t make particularly optimistic reading for those grappling with pension scheme deficits.
Read more in our latest Investment Insights briefing note: