LONDON: Short-dated British government bond yields on Tuesday staged one of their biggest one-day falls this year after Bank of England Governor Mark Carney made clear his opposition to raising interest rates any time soon.
Carney's comments sent the pound tumbling to a one-week low against the dollar and reversed a rise in gilt yields that followed a BoE decision on interest rates last week, when three policymakers unexpectedly voted for a hike.
But Carney said a rate rise was not appropriate. "Now is not yet the time to begin that adjustment," he said in a speech to London's banking community.
"In the coming months, I would like to see the extent to which weaker consumption growth is offset by other components of demand, whether wages begin to firm, and more generally, how the economy reacts to the reality of Brexit negotiations."
Short-dated gilt yields, most sensitive to changes in expectations of future interest rates, fell furthest.
The two-year yield touched a low of 0.117 percent, before edging back up to 0.13 percent, down 5 basis points on the day and within sight of its biggest one-day fall this year.
The 10-year yield dipped below 1 percent for the first time since last week's interest rate decision, shedding around a 3 basis points from Monday's close.
"After the shock from last week's vote, obviously markets didn't quite take on board the fact that getting the other five (BoE policymakers) to move ... will take rather more (time)," Marc Ostwald, market strategist at ADM Investor Services, said.
Ostwald said Carney may have hardened his stance after the Sunday Times reported that the BoE was considering closing the Term Funding Scheme stimulus plan designed to keep credit flowing after last June's Brexit vote, potentially laying the ground for higher interest rates.
"Certainly the message from Carney today was no, not a chance," Ostwald said.
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