Renewable Energy

UK gilt yields jump by most in 3 months as inflation perks up

Credit: REUTERS/PHIL NOBLE

British 10-year government bond yields jumped by the largest amount in three months on Thursday, tracking a similar rise in euro zone debt yields following stronger than expected German and U.S. inflation data.

LONDON, July 11 (Reuters) - British 10-year government bond yields jumped by the largest amount in three months on Thursday, tracking a similar rise in euro zone debt yields following stronger than expected German and U.S. inflation data.

Ten-year gilt yields GB10YT=RR, which have fallen sharply recently, peaked at a 10-day high of 0.844% at 1510 GMT, up more than 8 basis points on the day, and were on track for their biggest daily rise since April 3.

Other maturities of gilt rose by a similar amount.

Just a week ago 10-year yields touched 0.654%, their lowest since September 2016, as markets bet on looser policy from the U.S. Federal Reserve and the European Central Bank.

"It's a little bit of an unwind. The market had probably got ahead of itself in terms of discounting Bank of England rate cutting," said Marc Ostwald, global strategist at ADM Investor Services.

The BoE is alone among major advanced-economy central banks in having an official tightening stance, though on Wednesday policymaker Silvana Tenreyro said the time for a rate rise was becoming more distant, and last week Governor Mark Carney noted a darker international outlook due to trade tensions.

Triggers for higher yields on Thursday included an upward revision to German inflation as well as stronger-than-expected U.S. core inflation, Ostwald said.

A bounce-back in a closely watched survey of Britain's housing market, which showed its strongest price gauge since August, also boosted prospects for inflation, he added.

None of this, however, shifted the clouds of Brexit uncertainty hanging over Britain's economy, which most economists think will prevent the BoE from raising interest rates this year.

Carney said on Thursday that Britain's banks were ready for a no-deal Brexit but it would still bring significant turbulence to financial markets and the rest of the economy.

Financial market pricing shows a more than 50% chance that the BoE will cut interest rates before Carney is due to leave at the end of January, and RBC on Thursday became the first major bank to forecast a cut this year. BOEWATCH

(Reporting by David Milliken Editing by Gareth Jones)

((david.milliken@reuters.com; +44 20 7542 5109; Reuters Messaging: david.milliken.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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