UK Gilt Yields Surge Again, As Risk Sentiment Turns Negative

Posted Saturday, October 8, 2022 by
Skerdian Meta • 2 min read

UK economy bouncing in February

The bond market appears to be driving markets around once gain, particularly UK gilts. UK 10-year gilt yields fell below $4% this week after the Bank of England started intervening in the bond market, buying billions of UK government bonds. UK officials again emphasized on Thursday how close pension funds were to liquidating UK gilts which might be a good reason for the bearish reversal in risk sentiment.

UK 10Yr Gilt Yields Daily Chart – Bouncing Back Up

The 20 SMA held as support on the daily chart

Markets were spooked by these comments, which highlight the vulnerability of the financial market and government finances. UK 10 yr gilt yields met the 20 SMA (gray)on the daily chart which turned into support and formed a doji candlestick, which is a bullish reversing signal after the bearish move. The increase resumed again and gilt yields closed the week above 4.20%.

Beyond that the details didn’t matter and I have to think that the weight of all the hawkish Fed talk this week added to the tumble. The dollar rose on the data and then rose again late in the day as equities crumbled. The Nasdaq fell 4% to nearly give up the week’s gains.

GBPUSD moved below the 200 hour MA for the 2nd time since the US jobs report. The 200 hour MA comes in at 1.11169 currently. The initial try took the low to 1.10903 before bouncing. That low tested the broken 38.2% of the 2-month trading range off the daily chart below at 1.10944. Buyers came in against that level.

If the selling can increase momentum, the next key target for bears would be 38.2% off the daily chart at 1.10944. Below that and the 38.2% off the hourly chart comes in at 1.10589. There is a swing area on the hourly chart as well as at 1.1019 (just above the 1.1000 natural support level).