Edward Hayden-Briffett
Research Analyst, Flux
Big Week For Central Banking, Aggressive UK Bond Yield Moves
Federal Reserve, Bank of England, European Central Bank hold; hawkish tone lifts yields, GBP jumps, Germany faces deflation.
Big week in central banking, as Fed, Bank of England and ECB all hold rates unchanged.
Hawkish comments from both the FOMC and Bank of England have moved OIS pricing to -2.5 bps and +65 bps by year-end, respectively. Cable had an extreme reaction to yesterday’s hawkish MPC and jumped from 1.325 to over 1.345 at the high, moderating so far in today’s morning session. Bank of England saw rare consensus with all 9 MPC members voting to hold rates.
Bond yield move were particularly aggressive in UK, where 2 year Gilt yield surged 40 bps to almost 4.5% after BoE decision and signalled it is ready to tackle rising inflation. Extremely aggressive selloff in Treasurys this morning – 10 year yield spiked to over 4.4% but quickly dropped back to around 4.27%.
Germany has the opposite inflation problem: February PPI came in at -3.3% y/y, worse than Jan (-3%) and expected -2.7%. Marks the 12th consecutive month of deflation. Lower energy prices a huge negative on producer prices, while food costs also dropped significantly. Energy prices set to jump, however, as TTF prices have nearly doubled since end of February. The International Energy Agency recommends people work from home and avoid air travel to reduce the impact of the oil crisis.
No significant data today
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