LONDON: British gilt prices rallied on Thursday after the U.S. Federal Reserve raised interest rates for the first time in nearly a decade, with bond investors relieved by the central bank's commitment to a "gradual" cycle of rate hikes.
The Fed raised the range of its benchmark interest rate by a quarter of a percentage point to between 0.25 percent and 0.50 percent, ending a lengthy debate about whether the U.S. economy was strong enough to withstand higher borrowing costs.
The move sparked a surge in equity markets, heartened by the signal of confidence in the world's largest economy, as well as in European government bonds.
Ten-year gilt yields fell 5.6 basis points on the day to 1.89 percent, and yields fell across other maturities too.
"Overall, there were no nasty surprises in there - the Fed sounded quite dovish, data-dependent, so I think fixed income markets were quite happy with it," Jason Simpson, fixed income strategist at Societe Generale.
Gilt yields briefly edged higher after stronger-than-expected British retail sales data.
Short sterling futures rose, particularly for the longest-dated contracts, pointing to a slightly shallower path for British interest rate hikes.
There was little change in market pricing for the timing of the first Bank of England interest rate hike, which is still marked for around the end of next year.
"There will come stage when it's the Bank of England's turn, but (not) as things stand," said Simpson, who pointed to data on Wednesday that showed weakening British wage growth.
"That's clearly been indicated as a driver of Bank policy. It removes any pressure to hike near term, with commodity prices likely to keep the headline rate of (British) inflation low."
Gilts lagged German Bunds, with the 10-year yield spread rising around a basis point on the day to 127.5 basis points.
Comments
Comments are closed for this article.