Traders are betting that the Bank of England will raise interest rates soon next month

Traders bet that the Bank of England will raise interest rates from record lows in November after Governor Andrew Bailey said the central bank “must act” to curb inflationary pressures over the weekend. There is.

The latest signal from the Bank of England that a monetary tightening policy is underway triggered a short-term sale of UK government debt on Monday, causing yields to skyrocket. Two-year gold yields rose 0.15 points to 0.72 percent, the highest level in two and a half years.

Investors have been increasingly aggressive since the BoE’s Monetary Policy Committee said last month that it could raise the current low of 0.1% before the bond purchase program ends at the end of the year. I’m betting.

Bailey’s comment On Sunday, when central bank governors said they were concerned about rising inflation expectations over the medium term, they triggered a more dramatic move in markets related to BoE rates.

Theo Chapsalis, Head of UK Rate Strategy at NatWest Markets, said: “The market reinforces the hawkish story and recognizes it as throwing oil on fire.”

The market is currently fully priced by raising interest rates to 0.25% at the next meeting of the BoE on November 3, which could be further tightened by the end of the year. Traders are betting that interest rates will reach 0.5%, the threshold for starting the unwinding of central bank bond purchase programs by February, and reach 1% by August.

Prior to the BoE’s September meeting, by next summer, only one increase from the current low of 0.1% was priced.

Earlier this year, investors invested in so-called steepner transactions. There, they bet that growth and recovery in inflation would significantly increase long-term bond yields. Instead, Monday’s sale focused on short-term government bonds, which are very sensitive to interest rate expectations, but long-term gilts, which generally reflect investors’ perceptions of long-term growth and inflation dynamics, are much more. Showed a modest move.

According to Chapsalis, the scale of the move suggested that investors looking for a steeper yield curve were forced to throw towels. “What you’re seeing this morning is a spectacular washout across steep positions,” he said.

The 10-year gold yield rose 0.07 points to 1.16 percent, but did not reach last week’s high of 1.21 percent. According to ING strategist Antoine Bouvet, the lack of significant declines in long-term gilts could turn out to be a mistake that a series of sharp rate hikes would eventually have to reverse the BoE. It reflects the investor’s belief that there is.

“Given the headwinds facing the economy this winter, the BoE is pretty aggressive,” said Bouvet. “In addition to fiscal tightening and the impact of rising energy prices on consumers, monetary tightening will occur. If they continue to raise rates rapidly, it can be considered a policy error.”

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Traders are betting that the Bank of England will raise interest rates soon next month

Source link Traders are betting that the Bank of England will raise interest rates soon next month

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