Can the BOE Keep Gilt Yields Under Control?
UK gilt yields reversed lower yesterday after surging for two months as the BOE intervened, but can they keep it under control
UK gilt yields have been increasing since 2020, but particularly since August and especially in the last two weeks, they have been absolutely surging. The 10-year gilts yields increased from around 1.75% in early August to around 4.60% yesterday, before Bank of England decided to step in with QE-style intervention, which reversed them down toward 4%.
UK 10-Year Gilts Daily Chart – Can MAs Hold As Support?
Sellers managed to push the price below the 20 daily SMA yesterday
The BOE announcement provided a brief relief for risk trades, as US futures pared a roughly 1% drop before falling back now as we approach North American trading. The BOE bought bonds with +20-year maturity starting yesterday with the amount being up to GBP5 billion per action initially although the parameters could be changed.
Now, the big question is whether they can keep the yields down. Bond buyers had been lurking with rates a +10-year high but the buyers were overwhelmed by forced selling due to liquidations and quarter end. With the momentum now shifting, there’s some FOMO in bonds that’s pushed US 10s down 23 bps.
This could be the start of a long-end led bull flattener that inserts the curve even deeper with the front-end pinned higher by Fed policy. In any case, all the broader markets needed was a bit of stability in bonds to spark a reversal, something I’ve been highlighting for a week. The S&P 500 fell for six straight days until today and it’s now up 58 points.
GBP/USD H4 Chart – Pushing Above the 20 SMA
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