UK bonds headed for worst month since 1995 may face more losses

21/6/2022 1:07:00 PM

Analysis: UK bonds headed for worst month since 1995 may face more losses - Bloomberg

Analysis: UK bonds headed for worst month since 1995 may face more losses - Bloomberg

(June 21): Front-end UK bonds haven’t had it this brutal in ages. In fact, they haven’t had this bad a month since 1995, a period when the economy was still grappling with Britain’s exit from the European Exchange-Rate Mechanism.Two-year yields shot up more than 70 basis points in June through Monday (June 20), raising temperatures on fixed-income trading desks to match the weather outside in the UK. Lest it should be mistaken, the writing has been on the wall

A (June 21): Front-end UK bonds haven’t had it this brutal in ages.A LONDON (June 20): Britain's main manufacturing lobby, Make UK, told the government to stop"short-term gimmicks" and cut taxes for the sector, as its members reported a significant slowdown in orders and a nose-dive in investment.for the latest news you need to know.A (June 20): UK house prices rose to a new record in June, but there’s mounting evidence the red-hot market is starting to cool, according to Rightmove.

In fact, they haven’t had this bad a month since 1995, a period when the economy was still grappling with Britain’s exit from the European Exchange-Rate Mechanism.Two-year yields shot up more than 70 basis points in June through Monday (June 20), raising temperatures on fixed-income trading desks to match the weather outside in the UK.3% this year - down from a forecast of 3% three months ago - and slow further to 1.Lest it should be mistaken, the writing has been on the wall for gilts for a long time now.3 per cent this year — down from a forecast of 3 per cent three months ago — and slow further to 1.At current levels, front-end gilts fully discount another 100 basis points of increases from the Bank of England (BOE), which overnight indexed swaps reckon will happen by the middle of September.The Paris-based OECD forecast this month that Britain will see the weakest growth next year of any major economy other than Russia, as well as persistent inflation.What’s more, OIS traders are itching to price another 100 basis points of increase by year end, which gilts have yet to price in.The monthly increase of 0.

In other words, there is a lot more downside for gilts if the BOE stays resolute after its recent epiphany on the need to go faster to quell inflation.Stephen Phipson, Make UK's chief executive, warned of"very stormy waters" ahead and said years of"political chaos and uncertainty" since the 2016 Brexit referendum had also taken their toll on investment.Higher costs had led to a particularly big retrenchment in British manufacturers’ investment plans over the past three months, according to Make UK’s members.We will get the inflation data for May on Wednesday, with retail-price inflation expected to accelerate further above 11%.From present indications, those are not numbers that will come down in a long, long time if the the BOE sticks to its glacial pace of 25 basis points per meeting.Britain's government is raising the main rate of corporation tax next year, but has said it will review incentives for business investment before then, as a temporary COVID-era investment incentive is due to expire.Over in the US, for example, former Treasury secretary Lawrence Summers reckons the economy needs five years of unemployment above 5% to contain inflation.Britain’s government is raising the main rate of corporation tax next year, but has said it will review incentives for business investment before then, as a temporary Covid-era investment incentive is due to expire.While the yardstick is bound to be completely different in the UK, his point nevertheless serves as a useful reminder of the quantum of work that lies ahead of the BOE.Subscribe to Mid-day email alert We deliver news to your inbox daily.Demand for mortgages is also dropping as interest rates rise.

Yes, the economy may be slowing, but with retail-price inflation having already run into double-digit territory, the BOE — whose inflation target “applies at all times” by its own admission — has its work cut out.And that means further losses for gilts in the months to come.NOTE: Ven Ram is a cross-asset strategist for Bloomberg’s Markets Live.The observations are his own and not intended as investment advice.For more markets commentary, see the MLIV blog.

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UK manufacturers decry government 'gimmicks', want tax cutsLONDON (June 20): Britain's main manufacturing lobby, Make UK, told the government to stop 'short-term gimmicks' and cut taxes for the sector, as its members reported a significant slowdown in orders and a nose-dive in investment.Make UK said it expected factory output to grow 2.3% this year - down from a forecast of 3% three months ago - and slow further to 1.7% in 2023, as manufacturers battled surging raw material costs and higher staff pay demands.The Paris-based OECD

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