LONDON: British government bond yields rose to a 10-day high on Thursday after the Bank of the England wrong-footed investors by keeping interest rates on hold, in its first monetary policy decision since last month's Brexit vote.
Investors and economists had expected Britain's central bank would cut rates from 0.5 percent to a new record low of 0.25 percent.
Instead the BoE said it would wait until next month when it had a better view of how fast the economy was slowing, before potentially unveiling a wider package of measures.
Gilt yields rose sharply and short sterling futures fell, although the reaction was more muted than some had feared.
"It could have been a lot worse," said Marc Ostwald, strategist at ADM Investor Services.
"That's because we had a big clear-out earlier in the week thanks to the fact that (new British prime minister Theresa) May was able to form a government -- something that could have taken until September -- as well as the elections in Japan."
The 20- and 30-year gilt yields peaked at 1.541 percent and 1.686 percent, their highest since July 4.
The five-year gilt yield also rose to its highest level since June 30.
The 10-year gilt yield rose most strongly, up 5 basis points on the day at 0.795 percent, though it remained a whisker below a high reached on July 12.
Short sterling futures, a guide to British interest rate expectations, fell between 5 and 7 ticks across the 2016 and 2017 contracts.
Ostwald said this reflected the market adjusting to the unexpected decision to hold rates rather than a repricing of the expected path of future interest rates, given the move was uniform across the range of contract maturities.
"Things aren't going to stop being choppy. Markets are still very jumpy," he said.
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