This could also encourage banks to buy more short-term gilts.”

This is not far off the rates currently paid on short-term gilts, but is unlikely to remain so low for long.

The DMO advises on how much debt should be issued in long, medium or short-term gilts.

British short-term gilts are still paying higher yields than Bunds, and much higher than U.S. dollar Treasuries.

This made short-term gilts an attractive buy (before any interest rate cut), because of their fixed interest payments, so the price of these rose, driving down their yield.

The effects would likely be 1) to lower SONIA, 2) lower short-term gilts, and 3) portfolio rebalancing, which could spark a further rally in risk assets.

Short-term gilts will probably keep outperforming but as we hit and start to look over a three to six-month horizon, maybe that's when we get the chance to reverse that type of a trade,' said Sean Maloney at Nomura.