UK Gilts Rise As Yellen Hedges on Rates
The United Kingdom 10-year gilts gained for second straight day on Wednesday amid following dovish comments made by the Federal Reserve Chair Janet Yellen. Yesterday, the British 10-year government bond prices touched a 3-week high, bolstered by falling oil price.
The 10-year gilt yield fell as much as 5 basis points on the day to 1.38 percent, its lowest level since March 8 - a day when poor Chinese economic data sent safe-haven government bonds rallying.
In her speech to the Economic Club of New York yesterday, US Federal Reserve Chair Janet Yellen was more dovish than expected and she said that that caution in raising rates is especially warranted and the Fed has considerable scope for stimulus if needed and the central bank could deploy forward guidance and QE if needed. In terms of the outlook for rates, Yellen reiterated that the FOMC expects gradual rate increases in the coming years but noted that the future rate path is necessarily uncertain.
We note that gilts were traded on the lower end of its range of 1.40-1.50% (which is prevailing since 17 March), with the Gilt/Bund spread in the upper 120s and this spread is likely to widen to 130-135bps along with widening for Treasuries/Bunds due to the contrast between steady monetary policy at the BoE and the easing bias at the ECB.
The material has been provided by InstaForex Company - www.instaforex.com
