Free Trial

GILTS: Yield Jump Notable Not Exceptional, Could Be Sticky Given Drivers

GILTS

While the 2-day net moves in gilt yields are no doubt notable, the chart below shows that such moves have not been particularly rare in recent years.

  • The chart also reminds us of the scope of the move that followed the Truss ‘mini’ Budget, with this week's sell off far more contained.
  • These moves, however, feel somewhat stickier than the sell off that followed the Sep ’22 Budget, which was aided by the well-documented LDI deleveraging.
  • The move seen over the past 2 days has instead been driven by a mixture of increased inflation expectations and the risk of increased issuance over the medium-term.
  • Another matter to consider is that the recent weakening comes at a time when the BoE is looking to loosen policy. Meanwhile, in Sep '22, the BoE was on a well-established tightening path.
  • Higher yields and inflation do not provide particularly fertile grounds for an easing cycle, with the BoE policy rate still ~150bp above the estimated neutral level (based on the latest MAPS survey).

Fig. 1: 2-Day Net Change In 2- & 10-Year Gilt Yields (bp)

Keep reading...Show less
179 words

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.

While the 2-day net moves in gilt yields are no doubt notable, the chart below shows that such moves have not been particularly rare in recent years.

  • The chart also reminds us of the scope of the move that followed the Truss ‘mini’ Budget, with this week's sell off far more contained.
  • These moves, however, feel somewhat stickier than the sell off that followed the Sep ’22 Budget, which was aided by the well-documented LDI deleveraging.
  • The move seen over the past 2 days has instead been driven by a mixture of increased inflation expectations and the risk of increased issuance over the medium-term.
  • Another matter to consider is that the recent weakening comes at a time when the BoE is looking to loosen policy. Meanwhile, in Sep '22, the BoE was on a well-established tightening path.
  • Higher yields and inflation do not provide particularly fertile grounds for an easing cycle, with the BoE policy rate still ~150bp above the estimated neutral level (based on the latest MAPS survey).

Fig. 1: 2-Day Net Change In 2- & 10-Year Gilt Yields (bp)

Keep reading...Show less