Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

UK Government Bonds, Gilts Rally on Hint of More Q.E.

Interest-Rates / UK Debt Jun 24, 2011 - 07:18 AM GMT

By: Seven_Days_Ahead

Interest-Rates

Best Financial Markets Analysis ArticleThe rally in government bond markets over recent months has been driven by two anxieties:
1.The health of the global economic recovery, and
2.The Euro zone Sovereign debt crisis.


FUNDAMENTALS:
The rally in government bond markets over recent months has been driven by two anxieties:
1.The health of the global economic recovery, and
2.The Euro zone Sovereign debt crisis.

In the US, the economy has been slowing for several months despite the Fed’s QE2 program which worryingly draws to a close at the end of this month. The Fed acknowledges the weakness but so far hasn’t proposed any new measures designed to reverse the slowdown due to fears of gradually accelerating inflation.

In China, the authorities have tightened monetary policy on several occasions as they try to contain inflation and prevent an asset bubble from developing in an economy that has invested heavily in manufacturing capacity designed to fuel export-led growth.

In the Euro zone the recovery continues to be propelled by fast-growing Germany. But strip out German growth and the picture looks very different, with weaker peripheral economies struggling to cope with the burden of public debt and austerity measures designed to bring public finances back under control. But despite this, Greece and a few others remain in intensive care with default, at least in Greece looking like a real possibility.

IN the UK the coalition government has put into place deep spending cuts designed to bring public finances back to controllable levels that don’t hinder private sector growth, but the short/medium term consequences are slower growth, maybe even recession?

Over the last 1–2 years the Bank of England has walked a policy tightrope that this year has become ever more demanding.

As the austerity measures have begun to bite, the economy has rapidly cooled with the most recent retail sales report coming in at -1.6% month on month. This is bad news for a service sector led economy.

The Bank until recently had been widely expected to begin tightening policy later this year in an attempt to gradually return CPI inflation to its target of 2.0% from the current and persistent overshoot of 4.5%.

Indeed, the committee had for several months been split over how to respond to the dichotomy facing the economy. Six members had consistently voted for policy to remain on hold, but with various caveats about growth and inflation, the other three had voted for an immediate rate hike, with one seeking 50bp.

As if that wasn’t enough of a split, one of the group of six wanted to increase the QE program from its current level of £200.0B, but was constantly out-voted. This week the Bank of England released the MPC minutes for the meeting held earlier this month and there was a clear change of tone.

Although inflation remains substantially above targets, policy makers are becoming increasingly concerned about growth which looks set to slow further over the coming months.

The Government has little choice but to see through its fiscal retrenchment or else risk a debt crisis similar to the one playing out in the Euro zone.

So fiscal policy isn’t an option. The Bank of England can not cut interest rates since they are already at 0.25% where they have been for about two years. The only option open is to restart QE and that seems to be the direction policy makers are heading.

If the economy does slow further as feared, the thinking is that inflation will correct substantially lower. Interest rate hikes will be unnecessary. But then deflation could conceivably become a risk once more.

The Bank then would have to start buying bonds once more and it is the prospect of the QE policy being re-activated that has begun to drive gilt yields lower and send Gilt futures higher.

We judge the Bank is more likely than not going to restart QE and the Gilt will enjoy the support restarting that program will offer, together with the support traditionally offered bonds from slower growth and declining inflation.
In short, the gilt rally seems far from over.

Mark Sturdy
John Lewis

Seven Days Ahead
Be sure to sign up for and receive these articles automatically at Market Updates

Mark Sturdy, John Lewis & Philip Allwright, write exclusively for Seven Days Ahead a regulated financial advisor selling professional-level technical and macro analysis and high-performing trade recommendations with detailed risk control for banks, hedge funds, and expert private investors around the world. Check out our subscriptions.

© 2011 Copyright Seven Days Ahead - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Seven Days Ahead Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in