UK Gilt Yields Trim Losses After BoE Rate Hike
The UK 10-year gilt yield pared its earlier decline after the Bank of England raised its key interest rate by 25 basis points to 4%, marking its first increase in more than three years. The decision was split 8-1, with Catherine Mann dissenting in favor of a larger 50 bps hike. Governor Andrew Bailey signaled that further rate increases may be necessary unless the Iran war is resolved, which would help ease the inflationary pressures behind the latest hike. Markets have since strengthened their bets on further monetary tightening, with three additional rate increases now fully priced in by November 2027. The BoE also warned that inflation could peak at 4.9% in Q2 2027, while its adverse scenario points to a sharper increase to 6.2% in the Q3. Despite the domestic pressure on yields, global bond markets remained supported by Brent crude prices hovering near two-month lows and falling US Treasury yields following a sweeping Democratic victory in the US midterm elections.
The UK 10-year gilt yield pared its earlier decline after the Bank of England raised its key interest rate by 25 basis points to 4%, marking its first increase in more than three years. The decision was split 8-1, with Catherine Mann dissenting in favor of a larger 50 bps hike. Governor Andrew Bailey signaled that further rate increases may be necessary unless the Iran war is resolved, which would help ease the inflationary pressures behind the latest hike. Markets have since strengthened their bets on further monetary tightening, with three additional rate increases now fully priced in by November 2027.
The BoE also warned that inflation could peak at 4.9% in Q2 2027, while its adverse scenario points to a sharper increase to 6.2% in the Q3. Despite the domestic pressure on yields, global bond markets remained supported by Brent crude prices hovering near two-month lows and falling US Treasury yields following a sweeping Democratic victory in the US midterm elections.