Bond yields hit a record low in the world market

Bond yields hit a record low in the world market are "susceptible to a sudden reversal," which could put the British bank's profits at risk, the Bank of England said.

Concern for sovereign debt crises can spread, undermining demand for government bonds, and the risk of accelerating inflation may cause whiplash sharp "in bond yields, the BoE said in its report Financial Stability. The bank said such a scenario could destabilize the market as happened in 1994, referring to a bond selloff that occurred when the prospect of rising inflation prompted the Federal Reserve to begin tightening monetary policy. The federal funds rate almost doubled to 5.50 percent this year.

"Increased performance can lead to business losses for banks, even if the assets are liquid," said the report. "Any sudden change in the low rates could therefore be a concern for financial stability and this can lead to a clash of value at risk for banks, resulting in the sale of assets."

policy makers on the market developed, including the Federal Reserve, the Bank of England and European Central Bank has kept its official borrowing costs at historically low levels to support the economy after the financial crisis that followed the collapse of Lehman Brothers Holdings Inc. 's in September 2008.

Loose monetary policies have helped the performance bar short-dated bonds, widening their spreads with longer-term securities. yields on five-year bonds fell to a record low of 1.0148 percent on Nov. 4, while the yield on German notes of two years was reduced to 0.43 percent on May 20, the level lowest since at least 1990.

The three central banks were held to raise official interest rates until the fourth quarter of next year .

"Volatility"

"Low interest rates, combined with the historically strong performance curves have allowed banks to generate substantial interest income, loans at low interest rates in the short term and investing long-term interest rates higher , "the bank said in the report. "Low bond yields have been the intended consequence of the actions of the authorities."

Borrowing costs may begin to increase more rapidly when politicians change their focus on inflation or limit speculation without foundation, the slowdown in growth and contain corporate profits. former Federal Reserve chairman, Alan Greenspan, tight six times in 1994, taking rates to 5.5 percent from 3 percent. The yield on Treasury bonds fell 3 percent as a result, the annual loss for the first time in a quarter century.

While the U.S. bond 1994, settlement increased volatility and affected international financial markets, the bank said it is unlikely that today's economies experience the same magnitude of increase in bond yields, in part because inflation expectations are "better anchored" and demand for the so-called active risk is not as strong as in the past.

"One reason for the increased volatility in 1994 was due to the leverage position of the investors and margin calls faced," the report said. "The derivatives such as structured notes are better understood today, and there are currently weaker appetite for riskier investments. That would be expected to mitigate the impact of blows to the shape of the yield curve."