UK gilt yields jump again after Fed signals go-slow on rate cuts
Recasts with opening gilt prices
LONDON, Dec 19 (Reuters) -British government bond prices fell sharply on Thursday after the U.S. Federal Reserve shocked global financial markets by signalling it would move slowly with cutting interest rates next year, despite lowering borrowing costs on Wednesday.
The yield on 10-year British gilts - which rises when prices fall - hit the highest since October 2023 at 4.656%, a jump of about 10 basis points on the day - roughly double the increase for German government bonds - before easing back a bit.
Two-year gilt yields climbed by a similar amount to reach their highest since May at 4.560%, also outpacing bunds.
British borrowing costs leapt earlier this week after official data showed faster-than-expected wage growth which could add to the Bank of England's worries about inflation and its reticence about cutting interest rates.
The gap between British and German 10-year government bond yields reached to its highest level in 34 years on Wednesday, in a sign of the diverging interest rate outlooks for the BoE and European Central Bank, and it widened further on Thursday.
British interest rate futures pointed to roughly 46 basis points of cuts to the BoE's benchmark Bank Rate by December 2025 - or slightly less than two quarter-point rate cuts - down from about 50 basis points of cuts priced in on Wednesday.
The BoE is expected to keep borrowing costs on hold at 1200 GMT on Thursday after its December monetary policy meeting and investors saw only a 42% chance of it cutting Bank Rate at its subsequent meeting in February.
The BoE has said it will move gradually to lower rates because of inflation pressures, despite signs of a slowdown in Britain's economy.
Writing by William Schomberg; editing by Sarah Young and Angus MacSwan
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
