UK fund managers expect interest rates and long term yields to fall before they rise, according to XPS

More than half of fund managers expect both UK base rates and long term gilt yields to fall to between 0% and -0.5% within the next 5 years, according to a  new survey. XPS surveyed Investment Fund Managers with assets under management totalling more than £1.6 trillion.

Long term yields – which reflect the markets expectation of future interest rates – have fallen by 1% over the last 2 years, which has caused considerable challenges to pension scheme funding.  XPS’ survey illustrates that record low interest rates and yields will provide no protection from the further falls in interest rates that fund managers expect.

Head of Liability Driven Investment at XPS Mark Minnis said: “The belief that yields can’t go lower has been defied by experience time and again. With record low interest rates and already negative short term government bond yields, there is no reason why longer term yields will continue to remain above zero. This is not a market for pension schemes to speculate in, schemes should look to hedge as far as practically achievable”