Chart of the Day
30-year bond yields jumped across the board yesterday, with the UK’s rising back above 1% and the German government now having to - get this - pay to borrow funds (pay 0.004% to be exact). The moves appeared to partly reflect increased hopes of more stimulus in the US, and for the UK especially the Bank of England’s more optimistic forecasts that came alongside its policy meeting.
The BoE left its policy rate unchanged at 0.1% - its inflation-adjusted policy rate sits firmly in the middle of major economies.
Markets are no longer pricing in negative rates:
The BoE presented better forecasts despite the current weakness of the economy, with car sales falling again in January.
The better-than-expected US claims data may have contributed to the increase in bond yields.
Firms’ unit labor costs growth remains high and would normally be accompanied by higher inflation.
The UK’s 10-year yield also rose by more than elsewhere. Italy’s dropped further on the back of hopes Mario Draghi will form a government there.
The GBP also held its own against the USD, but it general it was a story of dollar strength again yesterday, with EURUSD dropping below $1.20.
The USD was firmer against most currencies and could therefore reflect movements further out on the yield curve, or perhaps expectations the Fed will be more hawkish than expected when it meets Wednesday - worth noting that the Turkish lira was one of the stand-out performers as recent measures by policymakers bear fruit.
Although the 10-year real yield was little changed, gold dropped by 2.4%, perhaps reflecting the stronger dollar and the further appreciation of equities yesterday.
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