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147 matches for " gilt":
Gilt yields have shot up over the last couple of months, despite ongoing bond purchases authorised by the MPC in August. Ten-year yields closed last week at 1.47%, in line with the average in the first half of 2016.
Gilt yields have tumbled, with the 10-year sliding to just 1.0%, from 1.2% a week ago.
If 2017 really is the year of "reflation", somebody forgot to tell the gilt market. Among the G7 group, 10-year yields have fallen only in the U.K. during the last three months, as our first chart shows.
On the face of it, the outperformance of gilts compared to government bonds in other developed countries this year suggests that Brexit would be a boon for the gilt market. In the event of an exit, however, we think that the detrimental impact of higher gilt issuance, rising risk premia and weaker overseas demand would overwhelm the beneficial influence of stronger domestic demand for safe-haven assets, pushing gilt yields higher.
The MPC has wasted no time in seeking to counter this week's undesirable pick-up in gilt yields, which reflects investors dumping assets for cash.
Gilt yields have risen sharply over the last month, even though the Monetary Policy Committee is just one-third of the way through the £60B bond purchase programme announced in August. Government bond yields in other G7 economies also have increased, but not as much as in Britain.
Gilt yields have been remarkably stable following their decline in response to the Bank of England's Inflation Report in February. The average 60-day price volatility of gilts with outstanding maturities of greater than one year has fallen back recently to lows last seen in 2014, as our first chart shows.
Gilt yields have collapsed this year, aided by a surge in safe-haven demand, the much lower outlook for overnight interest rates and the resumption of QE. Bond yields also have fallen globally, but the drop in the ten-year gilt yields to a record low of 0.53%, from nearly 2% at the beginning of 2016, has greatly exceeded the declines elsewhere, as our first chart shows.
Investors likely will be caught out by the extent to which gilt yields rise this year. Forward rates imply that the 10-year spot rate will rise by a mere 20bp to just 1.45% by the end of 2018. By contrast, we see scope for 10-year yields to climb to 1.60% by the end of this year.
Gilts continued to rally last week, with 10-year yields dropping to their lowest since October 2016, and the gap between two-year and 10-year yields narrowing to the smallest margin since September 2008.
The gap between U.K. and U.S. government bond yields has continued to grow this year and is approaching a record.
The economic downturn and the Chancellor's unprecedented fiscal measures mean that public borrowing likely will be about four times higher, in the forthcoming fiscal year, than anticipated in the Budget just over two weeks ago.
The Chancellor has prepared the public and the markets for a ratcheting-up of the already severe austerity plans in the Budget on Wednesday. George Osborne warned on Sunday that he would announce "...additional savings, equivalent to 50p in every £100 the government spends by the end of the decade", raising an extra £4B a year.
We think that the higher inflation outlook means that the MPC will dash hopes of unconventional stimulus on August 4 and instead will opt only to cut Bank Rate to 0.25%, from 0.50% currently. The minutes of July's MPC meeting show, however, that the MPC is mulling all the options. As a result, it is worth reviewing how a QE programme might be designed and what impact it might have on bond yields.
The collapse in gilt yields last week--including a drop to a record low at the 10-year maturity--appears to be an ominous sign for the economic outlook. For now, though, the yield curve signals a further easing of GDP growth, rather than a spiral into recession. Low liquidity also means modest changes in demand are generating large movements in yields, undermining gilts' usefulness as a leading indicator.
Investors in the gilt market would be wise not to take the new official projections for borrowing and debt issuance at face value. The forecast for the Government's gross financing requirement between 2017/18 and 2021/22 was lowered to £625B in the Budget, from £646B in the Autumn Statement.
The bond market has become extremely pessimistic about the long-term economic outlook following Britain's vote to leave the EU. Forward rates imply that the gilt markets' expectation for official interest rates in 20 years' time has shifted down to just 2%, from 3% at the start of 2016.
In an interview with The Times yesterday, MPC member Ian McCafferty--who voted to raise interest rates in June--suggested he also might favour starting to run down the Bank's £435B s tock of gilt purchases soon.
The MPC must be very disappointed by the impact of its £60B government bond purchase programme. Gilt yields initially fell, but they now have returned to the levels seen shortly before the MPC's August meeting, when the purchases were announced.
A less rapid tightening of monetary policy in the U.K. than in the U.S. should ensure that gilt yields don't move in lockstep with U.S. Treasury yields over the coming years. But the outlook for monetary policy isn't the only influence on gilt yields. We expect low levels of market liquidity in the secondary market, high levels of gilt issuance and overseas concerns about the possibility of the U.K.'s exit from the E.U. to add to the upward pressure on gilt yields.
Gilt yields slid to record lows at many maturities in mid-February, and while equity prices have since rebounded, gilt yields have remained anchored at rock-bottom levels. But with political risks rising and deficit reduction still very slow, gilt yields look primed to spring back soon.
February's retail sales figures highlighted that consumers' spending was flagging even before the Covid-19 outbreak.
Political uncertainty is starting to dampen housing market activity again.
The recovery in the composite PMI to 52.4 in January, from 49.3 in December, should convince a majority of MPC members to vote on Thursday to maintain Bank Rate at 0.75%.
News that the Covid-19 virus has spread to more countries frayed investors' nerves further yesterday, with the FTSE 100 eventually residing 5.3% below its Friday close.
The Conservatives have continued to gain ground over the last week, with support averaging 43% across the 13 opinion polls conducted last week, up from 41% in the previous week.
The stagnation in business investment since 2016 has been key to the slowdown in the overall economy since the E.U. referendum.
The Covid-19 outbreak has rattled equity markets, but has not had a major bearing on DM currencies, yet.
The real Boris Johnson will have to stand up this year.
Many investors are betting that the MPC will announce a bold package of easing measures on Thursday. For a start, overnight index swap markets are pricing-in a 98% probability that the MPC will cut Bank Rate to 0.25%, and a 30% chance that interest rates will fall to, or below, zero by the end of the year.
The political momentum in the run-up to the election now lies with Labour.
MPs will be asked today to approve the PM's motion, proposed in accordance with the Fixed-term Parliaments Act--FTPA--to hold a general election on December 12.
The deadline for registering to vote in the general election passed on Tuesday, with a record 660K people registering on the final day.
Housebuilders were one of the biggest winners from the post-election relief rally in U.K. equity prices.
August's public finances figures, released last week, were an unwelcome but manageable setback for the Chancellor.
December's money and credit data support the MPC's decision last week to hold back from providing the economy with more stimulus.
The PM now is at a fork in the road and will have to decide in the coming days whether to risk all and seek a general election, or restart the process of trying to get the Withdrawal Agreement Bill--WAB--through parliament.
November's labour market report provided timely reassurance, after last week's downside data surprises, that the economy did not grind to a halt at the end of last year.
The government now has a 50:50 chance of getting the Withdrawal Agreement Bill--WAB--through parliament in the coming weeks, despite Letwin's successful amendment and the extension request.
Further evidence that the general election has transformed business confidence emerged yesterday, in the form of January's CBI Industrial Trends survey.
The public finances are in better shape than October's figures suggest in isolation. Public sector net borrowing excluding public sector banks--PSNB ex.--leapt to £11.2B, from £8.9B a year earlier.
Sterling briefly touched $1.30 yesterday, in response to signs that a very small majority in the Commons stands ready to vote for an unamended version of the Withdrawal Agreement Bill--WAB-- on Tuesday.
In recent public appearances, the Chancellor has made a concerted effort to downplay expectations of fiscal loosening in Wednesday's Autumn statement. On Sunday, he labelled the deficit "eye-wateringly" large and he warned that he was "highly constrained".
CPI inflation looks set to remain below the 2% target this year, driven by sterling's recent appreciation and lower energy prices.
As we write, the Commons appears to be on the verge of voting for the Withdrawal Agreement Bill--WAB--at its second reading but then voting against the government's "Programme Motion", which sets out a very tight timetable for its passage through parliament, in a bid to meet the October 31 deadline and to minimise parliamentary scrutiny.
Investors think it more likely that the MPC will cut Bank Rate in the first half of next year, following Friday's release of the flash Markit/CIPS PMIs for November.
The Chancellor hinted in the Autumn Statement that the fiscal consolidation might not be as severe as it appears on paper because he has built in some "fiscal headroom". By that, Mr. Hammond means that he could borrow more and still adhere to his new, self-imposed rules.
We find it remarkable, after the market volatility induced by the two Brexit deadlines in 2019, that investors do not foresee another bump in the road at the end of this ye ar, when the Brexit transition period is due to end.
The main measure of public borrowing--PSNB excluding public sector banks--came in at £2.6B in December, well below the £5.1B in December 2016 and lower than in any other December since 2000.
At the halfway mark of the fiscal year, public borrowing has been significantly lower than the OBR forecast in the March Budget.
The public finances are in better health than appeared to be the case a few months ago.
The mortgage market is continuing to hold up surprisingly well, given the calamitous political backdrop.
We are revising down our forecasts for quarteron-quarter GDP growth in Q1 and Q2 to 0.3% and 0.2%, respectively, from 0.4% in both quarters previously, to account for the likely impact of the coronavirus outbreak.
Markets were jolted yesterday by news that the U.S. Fed is mulling ending, or at least slowing, the reinvestment of Treasuries and mortgage-backed securities later this year. Such a move would reduce liquidity in global markets that has underpinned soaring equity prices in recent years.
The rally in U.K. equities immediately after the general election has done little to reverse the prolonged period of underperformance relative to overseas markets since the E.U. referendum in June 2016.
October's Markit/CIPS services survey suggests that the PM's new Brexit deal has had a lukewarm reception from firms.
Chancellor Sunak faces a tough first gig on Wednesday, when he delivers the long-awaited Budget.
The post-election run of upbeat business surveys was extended yesterday, with the release of the final Markit/CIPS services PMI for January.
November's monetary indicators provide an upbeat rebuttal to the swathe of downbeat business surveys. Year-over-year growth in the MPC's preferred measure of broad money--M4 excluding intermediate other financial corporations--rose to a 19-month high of 4.0% in November, from 3.5% in October.
Hopes that GDP growth will strengthen following the general election, which has eliminated near- term threats of a no-deal Brexit and a business- hostile Labour government, were bolstered yesterday by the release of December's Markit/ CIPS services survey.
The Chancellor will struggle to make his Spring Statement heard on March 13 over the noise of next week's key Brexit votes in parliament, likely spanning from March 12 to 14.
The release of October's GDP report on Tuesday likely will be overshadowed by campaigning ahead of Thursday's general election.
Productivity statistics released yesterday continued to paint a bleak picture. Output per worker rose by a mere 0.1% year-over-year in Q3, despite jumping by 0.6% quarter-on-quarter.
Investors now see a 50/50 chance of the MPC cutting Bank Rate within the next nine months, following the slightly dovish minutes of the MPC's meeting, and its new forecasts.
The Chancellor's Budget today looks set to prioritise retaining scope to loosen policy if the economy struggles in future, rather than reducing the near-term fiscal tightening. In November, the OBR predicted that cyclically-adjusted borrowing would fall to 0.8% of GDP in 2019/20, comfortably below the 2% limit stipulated by the Chancellor's new fiscal rules.
The economic data calendar for next week is so congested that we need to preview early September's GDP report, released on Monday.
The $10 increase in the price of Brent crude oil over the last three months to $68 is an unhelpful, but manageable, drag on the U.K. economy's growth prospects this year.
For sterling traders, no election news is good news.
Support in opinion polls for both the Conservatives and Labour has been increasing steadily.
Britain looks set for a general election during the week commencing December 9, now that all main parties are pushing for a pre-Christmas poll.
The MPC likely will raise interest rates on Thursday, for the first time since July 2007, in response to the uptick in GDP growth and the upside inflation surprise in Q3.
The risk of a snap general election has jumped following Theresa May's resignation and the widespread opposition within the Conservative party to the compromises she proposed last week, which might have paved the way to a soft Brexit.
Investors have concluded that Italy's political crisis will compel the U.K. MPC to increase interest rates even more gradually than they thought previously.
Chancellor Javid told the Financial Times earlier this month that he wants to lift the rate of GDP growth to between 2.7% and 2.8%, the average rate in the 50 years following the Second World War.
February's money and credit figures supported recent labour market and retail sales data suggesting that consumers are increasingly financially strained. Households' broad money holdings increased by just 0.2% month-to-month in February, half the average pace of the previous six months.
The MPC's decision yesterday was a "dovish hold", designed to keep market interest rates at current stimulative levels and to preserve the option of cutting Bank Rate swiftly and without surprise, if the economy fails to rebound in Q1.
2019 is a year many in the construction sector would prefer to forget.
The Budget on March 11 will be the first time that the new government's ambition and bluster collide with reality.
Speculation mounted yesterday that the MPC will follow the U.S. Fed and cut interest rates before its next meeting on March 26.
Over the summer, both Chancellor Javid and PM Johnson appeared to be repositioning the Conservatives, claiming that the era of austerity was over and that higher levels of spending and investment were justified.
The economic and political backdrop to this week's Monetary Policy Committee meeting is significantly more benign than when it last met on September 19.
January's Markit/CIPS manufacturing survey suggests that the outcome of the general election has brought manufacturers some momentary relief.
Borrowing by local authorities from the Public Works Loan Board, used to finance capital projects-- and arguably dubious commercial property acquisitions--has surged this year.
The Bank of England issued a statement yesterday that it is "working closely with HM Treasury and the FCA--as well as our international partners--to ensure all necessary steps are taken to protect financial and monetary stability".
The headline employment numbers masked an otherwise sub-par December labour market report.
Next week is so crammed full of data releases that we need to preview November's consumer price data early, in the eye of the storm of the general election.
Quarter-on-quarter GDP growth last year was buffeted by the accumulation, and subsequent depletion, of inventories, around the two Brexit deadlines in March and October.
The headline figures from yesterday's GDP report gave a bad impression. September's 0.1% month-to- month decline in GDP matched the consensus and primarily reflected mean-reversion in car production and car sales, which both picked up in August.
The absence of a hawkish slant to the MPC's Inflation Report or the minutes of its meeting suggest that an increase in interest rates remains a long way off.
Chancellor Sunak's "temporary, timely and targeted" fiscal response to the Covid-19 outbreak, and the BoE's accompanying stimulus measures, won't prevent GDP from falling over the next couple of months.
December's consumer prices report looks set to show that CPI inflation was stable at 1.5%--in line with the consensus--though the risks are skewed to the downside.
The measures to support the economy through the coronavirus crisis, unveiled by policymakers on Budget day, exceeded expectations.
We expect the flash reading of Markit's composite PMI, released today, to print at 52.4 in February, below the consensus, 52.8, and January's final reading, 53.3, albeit still in line with last month's flash.
As expected, the Chancellor kept his powder dry in the Spring Statement, preferring instead to wait for the Budget in the autumn to deploy the funds technically available to him to support the economy.
Investors concluded too hastily yesterday that November's GDP report boosted the chances that the MPC will cut Bank Rate at its upcoming meeting on January 30.
Chancellor Javid's resignation, only eight months after assuming the role, is the clearest sign yet that the Johnson-led government wants fiscal policy to play a bigger part in stimulating the economy over the next couple of years.
The rate of deterioration in the labour market remains gradual enough for the MPC to hold back from cutting Bank Rate over the coming months.
The latest GDP data confirm that the economy ended last year on a very weak note.
Today's general election looks set to be a closer race than opinion polls suggested two weeks ago.
We can't quibble with the consensus that GDP likely rose by 0.2% month-to-month in December, reversing only two-thirds of November's drop.
The market-implied probability that the MPC will cut Bank Rate in the first half of this year leapt to 50% yesterday, from 35%, following Mark Carney's speech.
The Conservatives successfully have defended their average poll lead over Labour of 10 percentage points over the last week.
The Office for Budget Responsibility has decided to press ahead with the publication of new fiscal forecasts on November 7, despite the government's decision to postpone the Budget until after the next election.
At next Wednesday's Budget, the Chancellor will have the rare pleasure of announcing lower-than- anticipated near-term borrowing forecasts. But hopes that he will prevent the fiscal tightening from intensifying when the new financial year begins in April look set to be dashed, just as they were at the Autumn Statement in November.
We're now starting to see clear signs in unofficial data that households are slashing their expenditure on discretionary services, in order to minimise their chances of catching the coronavirus.
Donald Trump's victory casts a shadow of political uncertainty over what had appeared to be a decent outlook for the U.S economy. The U.K.'s trade and financial ties with the U.S., however, are small enough to mean that any downturn on the other side of the Atlantic will have little impact on Britain.
October's consumer prices report, released on Wednesday, likely will show that CPI inflation has continued to drift further below the 2% target
The latest GDP data continue to show that the economy is holding up well, despite the Brexit saga.
We expect the Budget today to underwhelm investors who are eager to see a quick and powerful government response to the coronavirus outbreak.
At first glance, the continued weakness of domestically-generated inflation, despite punchy increases in labour costs, is puzzling.
Markets rightly placed little weight on October's below-consensus GDP report yesterday, and still think that the chances of the MPC cutting Bank Rate within the next six months are below 50%.
The fall in CPI inflation to just 1.5% in October-- its lowest rate since November 2016--from 1.7% in September, isn't a game-changer for the monetary policy outlook.
The Chancellor kept his word and made only trivial policy changes in the Spring Statement, but he hinted at higher spending plans in the Autumn Budget.
Investors have welcomed the flurry of encouraging opinion polls for the Conservatives that were published over the weekend, with cable rising nearly to $1.30 on Monday, a level last seen on a sustained basis six months ago.
The MPC is holding its nerve and not about to join other central banks in providing fresh stimulus.
CPI inflation held steady at 1.5% in November, marking the fourth consecutive below-target print, though it was a tenth above both the MPC's forecast and the consensus.
Expectations are running high that the Autumn Statement on November 23 will mark the beginning of a more active role for fiscal policy in stimulating the economy. The MPC's abandonment of its former easing bias earlier this month has put the stimulus ball firmly in the new Chancellor's court.
Today's labour market report looks set to be a mixed bag, with growth in employment remaining strong, but further signs that momentum in average weekly wages has faded.
With campaigning for the general election intensifying last week, it was unsurprising that October's money and credit release from the Bank of England received virtually no media or market attention.
The 2010s were the first decade since reliable records begin--in the 1700s--in which a recession was completely avoided
Expectations that the MPC will cut Bank Rate at its meeting on January 30 received a further shot in the arm at the end of last week, when December's retail sales figures were released.
Leading indicators are giving conflicting signals regarding the outlook for core goods CPI inflation.
The market-implied probability that the MPC will cut Bank Rate by June fell to 34%, from 38%, after the release of January's consumer price figures, though investors still see around an 80% chance of a cut by the end of this year.
The run of weak retail sales figures continued yesterday, with the release of November's official data.
Investors moved rapidly last week to price-in renewed easing by central banks around the world, in response to the rapid growth in coronavirus cases outside China and the resulting sell-off in equity markets.
The labour market remains healthy enough to persuade the MPC to keep its powder dry over the coming months.
PM Johnson has conceded considerable ground over the terms of Brexit for Northern Ireland in order to get a deal over the line in time for MPs to vote on it on Saturday, before the Benn Act requires him to seek an extension.
The case for the MPC to hold back from implementing more stimulus was bolstered by September's consumer prices figures.
The market-implied probability that the MPC will cut Bank Rate at its meeting on January 30 jumped to 63%, from 44%, following the release of December's consumer prices report.
We expect September's consumer prices report, released on Wednesday, to show that CPI inflation held steady at 1.7%, below the 1.8% consensus.
October's 0.1% month-to-month fall in retail sales volumes was disappointing, following substantial improvements in the CBI, BRC and BDO survey measures.
Members of the Monetary Policy Committee have signalled that January's flash Markit/CIPS composite PMI, released on Friday 24, will have a major bearing on their policy decision the following week.
The coronavirus outbreak and its associated movements in asset prices have radically changed the outlook for CPI inflation, which ultimately the MPC is tasked with targeting.
Markets greatly cheered the Conservatives' landslide victory on Friday, but remained cautious on the potential for the MPC to return to the tightening cycle it started in 2017.
The consensus forecast for a 0.6% month-to month rise in retail sales volumes in December--data released today--is far too timid.
The minutes of March's MPC meeting were more newsworthy than we--and the markets--expected. Kristin Forbes broke ranks and voted to raise Bank Rate to 0.50%, from 0.25%.
CPI inflation surprises look set to trigger larger- than-usual market reactions over the coming months, given that the MPC emphasised last month that it wants to see domestically-generated inflation rebound swiftly, after falling suddenly late last year, in order to justify keeping Bank Rate on hold.
On the face of it, December's flash Markit/CIPS PMIs warrant the MPC cutting Bank Rate at its meeting on Thursday.
The Brexit-related slump in corporate confidence finally has taken its toll on hiring.
The new fiscal projections in the Budget today likely will be based on implausible economic projections, which assume that wage growth will accelerate soon, lifting inflation, but that interest rates won't rise for three more years. You can coherently forecast one or the other, but not both.
The MPC will take a step forward on Thursday when it publishes an estimate of the medium term equilibrium interest rate--the rate which would anchor real GDP growth at its trend and keep inflation stable--in the Inflation Report.
The Bank of England won't set markets alight today. We expect another 9-0 vote to leave rates unchanged at 0.25%, and to continue with the £50B of gilt purchases and $10B of corporate bond purchases announced in August. This is not to say, though, that everything is plain sailing for the Monetary Policy Committee.
The MPC surprised nobody yesterday by voting unanimously to keep Bank Rate at 0.75% and to maintain the stocks of gilt and corporate bond purchases at £435B and £10B, respectively.
Markets expect RPI inflation--which still is used to calculate index-linked gilt payments, negotiate wage settlements, and revalue excise duties--to rise to only 2.7% a year from now, from 1.6% in June. By contrast, we expect RPI inflation to leap to 3.5%. As we outlined in yesterday's Monitor which previewed today's numbers, CPI inflation likely will shoot up to 3% from 0.5% over the next year.
Without tying its hands, the MPC--which voted unanimously to keep interest rates at 0.25% and to continue with the £60B of gilt purchases and £10B of corporate bond purchases authorised last month--gave a strong indication yesterday that it still expects to cut Bank Rate in November.
RPI inflation has declined in importance as a measure of U.K. inflation and was stripped of its status as a National Statistic in 2013. Yet it is still used to negotiate most wage settlements, calculate interest payments on index-linked gilts, and revalue excise duties. We have set out our above-consensus view on CPI inflation several times, including in yesterday's Monitor. But the potential for the gap between RPI and CPI inflation to widen over the coming years also threatens the markets' view that the former will remain subdued indefinitely.
The recent narrowing of the Conservatives' opinion poll lead suggests that investors, particularly in the gilt market, now must consider other parties' fiscal proposals.
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