The federal treasury market is experiencing hectic hours again, similar to the panic last September over former Prime Minister Liz Truss’ ill-fated tax cut. The utility of the so-called gilt – the debt of the public bonds was rejected when he realized, last Wednesday, a new increase of the country was given. At 8.7% in April, the figure was significantly lower than the 10.1% registered in March, but much higher than what had been expected.
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The UK treasury bond market is again experiencing agitated hours, similar to the panic caused last September by the tax cut of former Prime Minister Liz Truss. The utility of the so-called gilt – public debt bonds, after knowing, next Wednesday, new data on the country’s inflation rate. At 8.7% in April, the figure was significantly below the 10.1% reported in March, but much higher than many analysts had predicted.
The Bank of England (BoE) has already decided to change the mathematical model, after successive forecasts failed to show that prices in the UK would fall faster than they are. “There are important lessons to be learned,” acknowledged the head of the monetary authority, Andrew Bailey, on Tuesday before the election of the British Parliament, the governing body, which had ordered an increase of 8.4% month on month. Kalends of April.
Prime Minister Rishi Sunak himself has been caught promising to halve inflation before the end of the year. Investors now calculate that the BoE will need to raise interest rates, currently at 4.5%, to 5% by 2024.
The forum started on Wednesday with the actual response, but it is scheduled for Thursday. Two-year government debt bonds saw their yield (yield) rise up to 17 basis points on the hourly basis. During the week the increase reached 60 points. In the crisis generated by the mini-target —basically, a huge tax cut—Liz Truss-Kwasi Kwarteng finally (former minister of the economy) reached an increase of 89 basis points. That level of crisis has not yet been reached, but it was reportedly reached during the market crisis in 2008 and 2009.
As the yield increases, the value of the bond decreases. Investors anticipate that, as money becomes more expensive, new debt issues will take advantage, forcing outstanding bonds to match their value.
Government debt, yes, is greater, and investors who accumulate public debt lose value. The interest rate on ten-year UK government bonds is already 4.4%, much higher than Germany’s 2.5% or France’s 3%, and only compared to 4.3% on bonds.
“The fear of runaway inflation is lingering in the UK, and there are concerns about the BoE’s supposed ability to deal with this problem,” said Joel Kriiger, market trader at LMAX Group. The collapse of bonds and the pound sterling last September led to the sharp intervention of the BoE, which launched a debt buying spree and warned, in the historic style of Mario Draghi, whatever it takes, that he was doing so many times to stabilize the work. markets
Since then, the new government of Rishi Sunak and finance minister Jeremy Hunt has raised taxes and cut public spending. They have managed to convey calm and confidence to the markets, with the improvement of relations between London and Brussels, and the beginning of the resolution of the ongoing dispute over the land of Northern Ireland in the post-Brexit era.
The current situation, investors say, points to a fairly harsh adjustment, but perhaps more orderly. “The markets are still set on what the BoE will eventually do, and there are still doubts. It will take some time to digest this latest tremor,” lead manager of global currency investment fund Newton Investment Management. The key, in the coming months, will lie in the development of inflation, especially core inflation, which excludes food and energy, which refuses to come down in the United Kingdom. The IMF has changed its growth forecast for this country in 2023 and is already predicting a recession, but it shows a rise of just 0.4%.
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