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Bonds: Rally in Gilts cut short by report on ECB

By Alexander Bueso

Date: Thursday 13 Jul 2017

Bonds: Rally in Gilts cut short by report on ECB

(ShareCast News) - These were the movements in the most widely-followed 10-year sovereign bond yields:

US: 2.35% (+3bp)UK: 1.30% (+4bp)Germany: 0.60% (+2bp)France: 0.88% (+2bp)Spain: 1.71% (+6bp)Italy: 2.33% (+7bp)Portugal: 3.20% (+9bp)Greece: 5.34% (-2bp)Japan: 0.08% (-1bp)


Longer-term Gilts gave back their gains from the previous session in a volatile day of trading after the Wall Street Journal reported that European Central Bank president Mario Draghi would be attending the US central bank's Jackson Hole Symposium in August - for the first time in three years.

That saw yields on the 10-year note move sharply higher from their intra-day lows of 1.23% to finish the day at 1.31%.

According to the Journal, that annual gathering of the world's top thinkers on all things concerning central banks would offer Draghi an "obvious" opportunity to flag a policy shift on quantitative easing at the 7 September meeting of the ECB's Governing Council.

Acting as a backdrop, in an interview with The Times the Monetary Policy Committee's Ian McCafferty said Bank should weigh unwinding its $435bn of asset purchases sooner than planned.

In other news, the Institute for Fiscal Studies's Carl Emmerson told an audience the Chancellor was facing some very difficult trade-offs in trying to meet his targets for cutting the deficit while minimising the resulting pain for households and companies.

Nonetheless, the possibility did exist of continuing to run similar deficits as at present - worth about 2.4% of GDP - if the economy grew as at present.

That would allow public debt to continue falling as a proportion of GDP, although it would limit the government's ability to respond if the economy were to suffer badly, Emmerson said.

Yet in parallel, in its latest Fiscal Risks report, the Office for Budget Responsibility warned that if growth in Britain's GDP and receipts was just 0.1 percentage points less than projected per year (and spending unchanged) that would see the UK's debt-to-GDP ratio end up approximately 50 percentage points higher.

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