UK bond prices fall despite low expectation of near interest rate hikes

Yields on government bonds in both the UK and the United States fell during the week ending August 19 as a whole, even though yields did rise on UK gilts on Friday.

Sell-offs sent prices down Friday, but over the week, yields on the 10-year gilt fell from 4.217 percent to 4.208 percent, while 2-year yields went from 4.327 percent to 4.267 percent.

Prices rose in the UK even though all indications were that there would be no more interest rate hikes in the near future.

The primary evidence of this came in the minutes of the August meeting of the Bank of England’s monetary policy committee, which were released on Wednesday.

These minutes showed that the vote to lower rates by 25 basis points was a very close 5 to 4, with the governor of the Bank voting with the minority. It was the first time that had happened since the committee was formed in 1997.

Figures showing that consumer inflation was up in the UK in July was not gilt-positive, either. Not everyone was willing to give up hope of more rate cuts, however, with at least one analyst pointing out that the monetary policy committee stated in its meeting minutes that it was making “no presumption” regarding future interest rates.

Meanwhile in the US, 10-year Treasury bond yields began the week at 4.281 percent, but they were down to 4.211 percent by late in the afternoon on Friday.

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