8 Aug 2013
A mixed Inflation Report for Bond Markets
FXstreet.com (Barcelona) - A mix message for bond markets and Sterling rallied.
Core Government Bonds are rising today. The JGB rallied into the close on the back of the turn around in the Nikkie. There is a response in Europe to the weakness in Asian equities. Technically there has been a build up in positions on Carney lower for longer trades, such as the 2016 short Sterling contracts, where rates would rise if BoE unemployment forecasts are correct. There is an improvement in the bond market on whole really. However, rates in the US are higher on forecasts for a rate hike as early as 2014. The BoE has been quite open that the 10 and 30 yr year yields in the UK will be highly correlated to what goes on in the US.
Yesterday, markets were disappointed from a damper and weaker and a vague set of guidance form the inflation report. Based on the their unemployment forecasts, in a nut shell, this would mean base rates would remain on hold for three years, but this is not something Carney wanted as a headline and he wouldn’t commit to that which disappointed the markets. We saw front end guilt’s give back its gains and Sterling rally.
5 yr rates now, post the report and relative to where they were in July after the MPC said the rises in rates were unwarranted, are exactly where they were prior to that July statement which probably is not the outlook that their communication was planning for, i.e. monetary conditions are tighter today than this time yesterday. 2 yr bonds are unchanged, 5 year are 1.42% and 10 yr are at 2.47%.
Now we wait for the MPC minutes next week to see if there are any further forward guidance with regards to rates being indeed on hold for the next couple of years, reinforcing the message for markets.
Core Government Bonds are rising today. The JGB rallied into the close on the back of the turn around in the Nikkie. There is a response in Europe to the weakness in Asian equities. Technically there has been a build up in positions on Carney lower for longer trades, such as the 2016 short Sterling contracts, where rates would rise if BoE unemployment forecasts are correct. There is an improvement in the bond market on whole really. However, rates in the US are higher on forecasts for a rate hike as early as 2014. The BoE has been quite open that the 10 and 30 yr year yields in the UK will be highly correlated to what goes on in the US.
Yesterday, markets were disappointed from a damper and weaker and a vague set of guidance form the inflation report. Based on the their unemployment forecasts, in a nut shell, this would mean base rates would remain on hold for three years, but this is not something Carney wanted as a headline and he wouldn’t commit to that which disappointed the markets. We saw front end guilt’s give back its gains and Sterling rally.
5 yr rates now, post the report and relative to where they were in July after the MPC said the rises in rates were unwarranted, are exactly where they were prior to that July statement which probably is not the outlook that their communication was planning for, i.e. monetary conditions are tighter today than this time yesterday. 2 yr bonds are unchanged, 5 year are 1.42% and 10 yr are at 2.47%.
Now we wait for the MPC minutes next week to see if there are any further forward guidance with regards to rates being indeed on hold for the next couple of years, reinforcing the message for markets.