Matthew Amis, Investment Director, at Aberdeen, has shared his thoughts on what was another busy week for the gilt market.
Another blockbuster week in the gilt market. The aggressive move higher in global energy prices, slightly loose language from the Bank of England opening the doors to rate hikes and talk of fiscal packages from the Labour administration. One of these things happening would be enough to get the gilt market nervous, but when you get all 3 in one day the result is 10 year gilt yields heading for close to 5%.
In an alternative reality, where the conflict in the Middle East never happened, the Bank of England would have just cut interest rates and gilts would be heading for 4%, spurred on by weaker wage data. That shows the vulnerability of the UK’s economic position today.
We don’t think Bank of England communication was as hawkish as the market move suggests. Governor Bailey did not sound like a man who was going to raise rates three times by September. With regards the fiscal package offered by the Labour Administration, only time will tell, but note the April price cap already protects consumers somewhat until the July price cap is announced in May.
All the gilt market needs is people to starting buying! However, to do that we need some confidence and to get that we need de-escalation in the Middle East.
Markets on edge? Why diversification is your first line of defence.
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