Euro zone bond yields tick up as markets await Bank of England
British equities waver ahead of BoE rate decision
Euro zone bond yields ticked higher on Thursday, in subdued trading due to public holidays in many European countries, with investors focused on the Bank of England’s interest rate decision later in the day.
German 10-year bond yield, the benchmark for the euro zone bloc, rose 2.3 basis point to 2.48 percent. Italy’s 10-year yield was higher by 2.8 bps at 3.83 percent, and the gap between Italian and German yields widened 1 bp to 133 bps.
The spread between US 10-year Treasuries and German bunds narrowed 1.4 bps to 202 bps. Germany’s two-year bond yield, which is more sensitive to European Central Bank rate expectations, was little changed at 2.94 percent.
Meanwhile, London stocks struggled for direction on Thursday as investors turned cautious ahead of the Bank of England’s interest rate decision later in the day, while energy shares gave a boost to the benchmark index. The bluechip FTSE 100 was up 0.1 percent at 8,361.22 points. The mid-cap FTSE 250 was flat.
“There’s this caution of let’s just wait and see what the BoE has to say in order to take the next step and potentially move higher if we have a more dovish sounding central bank,” Fiona Cincotta, senior financial markets analyst at City Index said.
The pound slipped against the US dollar and was last at $1.2472 while the UK’s benchmark 10-year gilt yield was at 4.181 percent ahead of the decision. HSBC Holdings was the biggest drag on FTSE 100 as it traded ex-dividend. However, most other big banks listed on the benchmark index were trading higher.
“Banks are at the upper end on the leaderboard of the FTSE and that’s saying the market is expecting a slightly more dovish tilt from the central bank,” Cincotta said.
Investors avoided big bets ahead of the BoE’s interest rate decision due at 1100 GMT, where the central bank is widely expected to keep borrowing costs steady but the focus will be on whether policymakers deliver any groundwork for loosening policy.
Markets are currently pricing in a 50-50 chance of a June rate cut, and have priced in a cut in August. Oil stocks rose 0.6 percent, keeping the FTSE 100 afloat as oil prices gained due falling US crude inventories and an increase in Chinese imports last month.
3i Group was one of the bottom performers, falling 3.5 percent after posting full-year results. IMI Plc advanced 0.7 percent after the specialised engineering firm confirmed its full-year guidance. BAE Systems rose 0.8 percent after the defence firm said it was on track to meet guidance for higher earnings and forecast a “further positive momentum”.
Meanwhile, European stock markets advanced at the start of trade on Thursday with London close to a record high before a Bank of England decision on interest rates.
London’s FTSE 100 index rose almost 0.1 percent to stand at 8,369.93 points, ahead of a BoE rate call at 1100 GMT. In the eurozone, Frankfurt’s DAX index won 0.3 percent to 18,559.57 and the Paris CAC 40 index was marginally higher at 8,134.18 points.
The British central bank was set Thursday to keep its main interest rate at a 16-year high, resisting a cut as UK inflation cools at a slower pace than forecast.
The BoE is widely expected to maintain borrowing costs at 5.25 percent for a sixth meeting in a row, mirroring a wait-and-see approach by the US Federal Reserve and European Central Bank.