The Bank of England unexpectedly kept interest rates unchanged, and the sterling and British government bond yields resumed the linkage trend.
After policymakers made the decision to keep interest rates unchanged, the sterling and government bond yields fell. The pound fell 1.4% to below $1.35, the biggest drop this year. The 2-year yield fell by 17 basis points, the largest drop since the outbreak. Yields on 5-year Treasury bonds have stepped toward the biggest drop since the Brexit referendum.
Traders canceled aggressive bets on interest rate hikes, and the money market had expected a rate hike of about 15 basis points before the meeting. These bets have brought the yield on the 2-year British government bond close to its highest level in two years, while the pound is hovering near its lowest level this year.
Aaron Rock, investment director of abrdn plc in Edinburgh, said, “This press conference must be one of the worst communications with the outside world since the Bank of England gained independence in 1997.”
The sterling exchange rate and Treasury bond yields on Thursday mirrored the divergence trend since mid-September. After traders began to expect the central bank to raise interest rates next year, the pound hit a low for the year, and the two-year yield rose to the highest point since the beginning of the epidemic. Later, when the money market began to bet on a 15 basis point increase in interest rates this month, the yield soared , The pound fell.
After the central bank’s monetary policy decision was announced, traders postponed the expected time for the first 15 basis point rate hike to February next year. They now expect interest rates to rise to 1% by November next year, later than previously expected in August.
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