Bonds show BoE lags Fed on rates
LONDON: As the Federal Reserve prepares to raise interest rates, bond investors see the Bank of England lagging ever further behind on tightening policy. Two-year Treasury yields rose this week to the highest compared with U.K. securities since June. That coincided with an increase in the gap between when traders expect the two central banks to raise interest rates, a Morgan Stanley index shows. "That spread can test the highs seen earlier this year," said Vatsala Datta, a rates strategist at Royal Bank of Canada in London. "U.S. hikes will be quicker than the U.K. just because the U.S. is a stronger economy and also less open overall, while in the U.K. there are more spillover risks from Europe." Investors will be searching for clues about the timing of the Fed's liftoff when the central bank publishes the minutes of its July policy meeting later Wednesday. Traders price in a 50 percent chance of a move in September. The yield on two-year gilts fell two basis points, or 0.02 percentage point, to 0.57 percent as of 1:15 p.m. London time on Wednesday. The U.S. yield was little changed at 0.72 percent. The gap between them reached 16 basis points on Aug. 17, compared with as high as 27 in February. Gilt yields were higher than their American counterparts for most of 2013 and 2014.