Performance as at Quarter 4 2012 - Gilt yields ended the fourth quarter higher across the curve with short-dated yields rising by more than long-dated. The 10-year yield increased by around 0.10% to 1.83% at the end of December, with 5-year and 30-year yields up by 0.13% and 0.03% respectively. The market continued to be affected by shifting sentiment relating to international events such as the eurozone and the US ‘fiscal cliff’ as well as domestic and international data and the 10-year gilt yield traded in a range between 1.67% and 1.99% in the final three months of the year. Overall however, risk assets outperformed over the quarter.

Economic data releases were mixed, but generally better than expected during the quarter. GDP growth, which had been disappointing earlier in the year, was reported up 1.0% for the third quarter which, although boosted by the Diamond Jubilee and Olympics and despite a subsequent revision to 0.9%, was still significantly higher than expected. Unemployment figures were also generally better than expected. Inflation increased during the quarter with CPI (Consumer Price Index) inflation rising to 2.7% in November from 2.5% in August and RPI (Retail Price Index) moving up to 3.0% from 2.9%. The Bank of England’s Monetary Policy Committee left policy on hold and the market moved to price in a lower probability of a near-term expansion of gilt purchases. During December, S&P announced that it had placed the UK government’s AAA credit rating on negative outlook.

This commentary reflects the general views of individual fund managers and should not be taken as a recommendation of advice as to how any specific market is likely to perform.

Source: BlackRock