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Bond investors expect UK rates to rise

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by Brian Turner
Bond investors expect UK rates to rise

The price of UK gilts fell and yields were up at mid-day in London on Monday as investors gave up hope that interest rates would go down this year.

This sentiment came on the news that government borrowing was up to record levels.

It had been expected that borrowing would be £7.0 in May, but the actual figure ended up being £8.735 billion.

Additionally, the Bank of England announced that the UK money supply was up 1.7 percent in May. It had risen 0.7 percent in April.

Yields on the 10-year gilt went up 3.2 basis points to 4.425 percent while 2-year gilts were yielding 4.346 percent, a rise of 2.9 basis points.

Yields on government bonds in the eurozone also rose as crude oil prices were up to record highs.

Rising energy prices had been helping bond prices recently on the theory that the high cost of oil is more apt to weaken the economy than to increase inflation, but technical issues prevailed on Monday to cut bond prices.

The 2-year Schatz remained stable at a yield of 2.180 percent, while the 10-year Bund was yielding 3.312 percent, up 2.7 basis points.

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News posted: June 20, 2005

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