Bonds show BoE lags Fed on rates

The Pak Banker - - FRONT PAGE -

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.

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