Bonds: Divide between markets and economists on Bank Rate grows wider
The divergence between market pricing for the date of the first increase in Bank Rate and estimates from some economists grew wider on Thursday after the release of the minutes of the Monetary Policy Committee’s last meeting.
A case in point, Goldman Sachs stuck to its guns yesterday, still calling for the first rise in interest rates to arrive in the first quarter, whereas markets now see it coming in the second half of 2015.
That led that bank’s UK economist, Kevin Daly, to write to clients saying that: “The UK yield curve does not now price in the first BOE rate hike until the second half of 2015. We think that some of the market’s concerns over a sharp global slowdown are overblown. Our rate views are now more hawkish than market pricing.”
After dropping to 2.13% at one point in the day the yield on 10-year Gilts ended the session at 2.20%.
Long-term US treasury yields also moved higher during the session, gaining one basis point to finish at 2.23%.
Headline consumer price inflation Stateside was unchanged at a 1.7% year-on-year rate of change in September, as expected, despite a 0.7% month-on-month drop in energy prices.
The US core rate of inflation however did print at 1.7% year-on-year, one tenth of a percentage point below expectations.
Acting as a backdrop, markets continued to speculate on whether the European Central Bank would indeed finally be moved to expand its programme of asset purchases to cover corporate bonds.