UK 10-year bonds finish 2019 with record-low end-of-year yield

David Milliken

LONDON, Dec 31 (Reuters) - British 10-year government bond yields recorded their lowest-ever finish to a calendar year on Tuesday, after a quiet final half-day of trading in 2019, as concerns about Brexit and global trade tensions weighed on the long-term economic outlook.

Ten-year gilt yields closed at 0.827%, down 4 basis points on the day, and they have fallen 44 basis points since the start of the year.

The past year's drop in yields pales in comparison with that over the last decade, however. At the start of 2010, a 10-year bond offered a yield of 4.07%, according to Refinitiv data.

While the U.S. Federal Reserve has had some success in lifting its official interest rate off the record lows struck after the global financial crisis, 10 years of sub-par growth have kept British and euro zone rates close to rock-bottom.

Thirty-year gilt yields also finished 2019 at their lowest-ever end-of-year level, at 1.336%, down 48 basis points since the end of 2018.

But shorter-dated yields are higher than at the end of 2016, when the BoE was actively buying bonds to support the economy through the shock of the Brexit referendum result. And both 10- and 30-year yields are now higher than the all-time lows they struck in September when no-deal Brexit fears peaked.

Prime Minister Boris Johnson's unexpectedly decisive election victory on Dec. 13 means Britain now looks on track to leave the European Union on Jan. 31 with a transition arrangement that avoids tariffs until the end of 2020.

However, he only has a narrow window to negotiate a longer-term trade agreement after ruling out seeking an extension to the transition period.

Economists polled by Reuters earlier this month forecast growth of just 1% for 2020, and futures markets price in just over a 50% chance that the Bank of England will cut interest rates next year under its new governor, Andrew Bailey.

"The economy has been facing the twin headwinds of Brexit uncertainty, which has almost certainly depressed business investment and could also have undermined the consumer, and the weaker global economy," Ruth Lea, economic adviser to Arbuthnot Banking Group, wrote in a note to clients.

"Having said that, there still seems to be growth, which should be helped by an expected fiscal boost next year in the Budget," she added. (Reporting by David Milliken; Editing by Giles Elgood)