Foreign investors dump UK bonds at the start of the year

Foreign investors dumped their holdings of UK government bonds at the fastest pace in nearly three years at the start of 2017.

The latest data from the Bank of England show a £7.59bn fall in net overseas investor gilt holdings in January, the second consecutive month of declines and the biggest monthly dip since March 2014. The cumulative two-month fall in net sales since December is now over £10bn.

Foreign investors own around one quarter of the UK’s outstanding gilt market and play a crucial role in the country’s ability to fund itself at low rates.

The Bank of England began snapping up gilts and corporate bonds in the wake of the Brexit vote, unleashing a new quantitative easing programme in August last year.

Britain’s 10-year gilt yield, which reflects the government’s borrowing costs, has been steadily rising since the referendum, peaking at a post-Brexit vote high of around 1.5 per cent in January but falling back to 1.1 per cent this week. Yields fall when a bond’s price rises.