LONDON, May 25 (Reuters) – British bond prices tumbled again on Thursday as investors fear high inflation will force the Bank of England to raise interest rates further, with short-term government bonds falling the most in a week. It is expected to become For the last 20 years.
Yields, which are inversely proportional to prices, hovered around 6-8 basis points (bp) across the maturity range on the day and rose further on Wednesday as markets were reeling from stronger-than-expected inflation data.
The move marks a sharp tightening in financial conditions in the UK, with bond yields approaching levels seen during the ‘mini-budget’ turmoil in financial markets in September and October last year, prompting central bank officials. are likely to be concerned.
Yields on two-year bonds rose to 4.478% on Thursday, their highest since Oct. 10, and were up 7 basis points to 4.40% at around 1220 GMT on the day. .
Two-year bond yields are up 48 basis points so far this week.
Excluding the mini-budget announcement (the week when yields surged 89bps), the gain is the largest since June 2008, when the global financial crisis deepened.
Britain’s largest asset manager Legal & General Investment Management is refraining from long-term investments in gold, the company’s chief investment officer said Thursday.
“The inflation data we got yesterday in the UK will put a lot of pressure on the Bank of England to get the balance right,” Sonya Louud told reporters, adding that gold coins are more volatile than Treasuries. Added that it is expensive.
Swap rates, a key determinant of mortgage borrowing costs, also rose this week to their highest level since 1989, also outside the mini-budget period.
As a result, some microfinance institutions temporarily dropped or repriced their mortgage products on Thursday.
financial market The chances of the central bank raising bank rates to 5.5% at the end of the year, which was 50% on Wednesday, are almost fully priced in.
The gap between UK and German 10-year bond yields widened to more than 183 basis points (bp) this week. Excluding the mini-budget period, the gap was the widest spread since the Bank of England became operationally independent from the government in 1997.
The sustained narrowing of spreads since 1997 was seen by UK economic policymakers as a major achievement.
The 10-year yield itself hit 4.346% on Thursday, its highest level since mid-October, but fell by about 8 basis points to 4.288% on Thursday.
Fixed income strategists at UK government bond primary dealer NatWest said they now expect 10-year yields to reach 4.6%.
Saxo Bank said the 10-year bond yield could break above the key resistance of 4.59%.
Additional reporting by David Milliken.Editing: William Schomberg and Alexander Smith
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