Short Gilts Surge as Traders Slash Bets on BOE Hike in September

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Or sign-in if you have an account.fpnwjxh(ct(visu03y57]hmo_media_dl_1.png Bloomberg(Bloomberg) — Short-dated UK government bonds had their biggest daily rally in more than a month after the Bank of England left interest rates unchanged and pointed to easing domestic inflationary pressures.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountThe yield on two-year gilts — among the most sensitive to changes in monetary policy — fell 11 basis points to 4.34%, the steepest drop since June 12. The bonds extended their advance after Bank of England Governor Andrew Bailey told press conference participants not to leave the room thinking policymakers are “edging toward a hike.”Money markets reflected the dovish tone, with traders pricing around 32 basis points of tightening by year-end, compared with 38 basis points before the announcement. The chance of a move at the BOE’s next meeting in September shifted to less than 40% from almost 60%.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try again“There is a high bar to them raising interest rates,” said James Lynch, a portfolio manager at Aegon Asset Management, who sees the BOE leaving rates unchanged for the rest of the year. Bailey was “more explicit than I thought he would have been,” he said. Lynch said he’s sticking with his steepener trade, buying short-maturity gilts, while selling longer UK government debt. Still, the central bank’s Monetary Policy Committee voted six-three to hold, compared with economists’ expectations that two would call for an immediate rate rise. In the statement, policymakers said they remain ready to act against a backdrop of Middle East tensions and energy-price volatility.But they also noted “clear signs” that domestic inflationary pressures are easing and “little evidence” so far that the energy shock has stoked wage demands and higher prices elsewhere.Meanwhile, longer-dated gilts underperformed with 10-year yields falling four basis points to 4.99% and 30-year yields little changed at 5.73%.The BOE said its process of quantitative tightening has nudged 10-year yields 20 to 30 basis points higher. That’s five basis points more than than it estimated last year. It’s set to give an update on the outlook for the program, in which it allows its bond holdings to run off instead of replacing them, in September.Some market participants expect long-dated gilts to continue to lag in the weeks ahead, given there’s little chance of clarity on Prime Minister Andy Burnham’s tax and spending plans before the Autumn budget.“There’s so much uncertainty around the whole package,” said Laurence Mutkin head of EMEA rates strategy at BMO Capital Markets, on BTV. “Until budget day we’re going to keep that risk premium.”—With assistance from Georgia Hall.This advertisement has not loaded yet.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.