U.K. Bond Yields Climb to One-Year High as Investors Await BOE

  • Policy makers set to announce decision, new forecasts
  • Forward contracts imply first rate increase in November 2016

U.K. two-year government bond yields touched the highest level in more than a year as Bank of England policy makers prepared to announce their latest decision and publish new growth and inflation forecasts.

With the BOE considering its first policy tightening since 2007, economists and investors are looking for clues about when it will actually come. Forward contracts based on the sterling overnight index average, or Sonia, indicate that a full quarter-point boost to the official bank rate will come in November 2016. As recently as Oct. 30, an increase wasn’t signaled until at least 2017.

The two-year gilt yield was little changed at 0.72 percent as of 10:40 a.m. London time, after climbing to 0.73 percent, the highest since October 2014. The price of the 1 percent bond due in September 2017 was 100.505 percent of face value. The yield on benchmark 10-year gilts was at 1.99 percent, having reached 2.01 percent, the most since July 24.

U.K. government debt handed investors a 2.7 percent loss in the past month through Wednesday, underperforming U.S. Treasuries that dropped 1.3 percent and euro-area sovereign securities that were little changed, according to Bloomberg World Bond Indexes.

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