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UK government bonds 'facing their day of reckoning', says Tavistock's Christopher Peel

Published: 10:04 27 Oct 2016 BST

Tavistock's chief investment officer Christopher Peel tells Proactive that political instability in the UK has seen a continued sell-off in the British government bond market and pushed 10-year gilt yields to their highest since June’s Brexit vote.

Peel said: ''The benefits to a weaker pound are clearly being seen in the economy with the retail sales numbers - they didn't fall off a cliff. The manufacturing PMI numbers dropped in July and have bounced back strongly so the evidence to date would suggest that the economy has withstood the uncertainty and people are just getting on with it''.

''Inflation is the bond market's biggest enemy because people buy bonds for arguably the most defensive or cautious sector of their investments where they're looking for a real rate of return - maybe not by a lot - but a real rate of return greater than zero'', Peel added.

He went on to say: ''The reason I'm concerned about the bond market is if rates are at 1% and they just go up to 2% investors will lose roughly 10% of their capital, and the other thing that's important is that if you lose 10% of your capital and rates are still at only 2% - or yields are at 2% - it will take roughly 4 or 4.5 years to get your capital back.''

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