Thursday, September 5, 2013

King left at the right time

Markets pile pressure on Carney after rates held

Both Government borrowing costs and sterling spiked after the Bank held rates at 0.5pc and maintained the £375bn quantitative easing (QE) programme, and decided against issuing a statement to try to bring markets into line. It was the first time since Mark Carney took over as Governor in July that the announcement was not accompanied by a broader comment, despite the challenge posed to his credibility by the markets’ bet against “forward guidance” over the past month. While the Bank signalled that there would no move in rates until late 2016, markets now believe the first rate rise will come in mid-2015 in light of the UK’s rapidly improving economic prospects.

Posted by quiet guy @ 05:43 PM (1982 views)
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5 thoughts on “King left at the right time

  • Thanks QG,
    This is an interesting post.

    I looked at the linked 10 year chart and it said gilt prices were dropping.

    http://www.barchart.com/charts/futures/GU13

    If the price drops, the yield goes up, I believe. So why will it take so long (2015) for IRs to move upward? We are knocking on the door of 3% at the moment, aren’t we?

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  • @ alan

    The 10 year is, indeed, about to breach 3% (bund has notably gone above 2% today). What’s interesting is that the yield curve has become a little erratic of late. The 5 year down has looked like it’s being defended, but there may now be a towel in the air. DMO has another 1.9 bn from QE ‘gains’ to shoot at the short end, but even the 2 year now looks under a little pressure. Technicals suggest this will continue yet.

    In my opinion, the market is biting back. It’s not so much pricing in controlled bank rate rises, but more asking the question and trying to force it!

    A change of equilibrium could be very cathartic.

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  • I wonder what big Ben will come back with. Tapering HAS to be off the cards – the debt repayments would kill them.

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  • stillthinking says:

    You can let yields rise if you are prepared to let sterling fall. Once more on the same drum, the goal for the pound is to approach parity with the dollar while the background music keeps everybody calm, while unemployment keeps wages tight.

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  • stillthinking, your first comment is a little bizzare. Rising yields tend to support a currency. How do you know that the goal for the pound is to approach parity with the dollar? Do you have secret documents in your possession? That is not the opinion of any professional I know nor is it put forward as a solution by any credible economist. I worked with currencies for many years and I have to say that it’s probably the topic you most consistently get wrong

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