UK gilts slump after BoE sounds hawkish in policy statement; Governor Carney’s speech in focus

The UK gilts slumped during late European session Thursday after the Bank of England (BoE) sounded hawkish in its monetary policy statement, albeit keeping rates on hold. Investors will now eye Governor Mark Carney’s speech, following the decision, due later today for added direction in the debt market.

The yield on the benchmark 10-year gilts, jumped nearly 3-1/2 basis points to 1.33 percent, the super-long 40-year bond yields surged 2 basis points to 1.67 percent and the yield on the short-term 2-year traded 4 basis points higher at 0.75 percent by 11:25GMT.

The central bank also set out new guidance on when it might start to sell down its 435 billion pounds of British government bonds, saying this could come once rates have reached around 1.5 percent, sooner than previous guidance of about 2 percent.

The Monetary Policy Committee voted 6-3 to keep rates at 0.5 percent, where they have been for most of the past decade, in contrast to economists’ expectations in a Reuters poll for a continued 7-2 split.

Chief economist Andy Haldane joined long-term dissenters Michael Saunders and Ian McCafferty in calling for rates to rise to 0.75 percent, due to concerns that recent pay deals and labour demand could push wages up faster than expected.

Meanwhile, the FTSE 100 traded 0.55 percent lower at 7,585.44 by 11:30GMT, while at 11:00GMT, the FxWirePro's Hourly Pound Strength Index remained neutral at -28.75 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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