Transcript

The returns to investors from UK Government bonds, or 'gilts', of the various terms to maturity collectively form a crucial component of the personal finance landscape, the riskfree yield curve. A yield curve is the line graph that joins the returns that investors get from bonds with different terms to maturity - 1 year, 2 years, 5 years, 10 years, 20 years etc. A yield curve therefore represents what is known as the term structure of interest rates. The yield curve from gilts is called risk free as they are assumed to be completely free of the risk of default by the issuer - the UK Government. The slope of the yield curve reflects market expectations about the future movement of short term interest rates like the Bank of England's Bank Rate, or official rate of interest. If the slope is sharply upwards short term rates are expected to rise in the future. If the slope is downwards the expectation is that short term rates will fall in the future.