(Bloomberg) -- UK government bonds tumbled, catching up with an aggressive selloff in US Treasuries overnight after Federal Reserve Chair Jerome Powell signaled greater caution over further easing.
The yield on UK 10-year notes jumped as much as nine basis points to 4.65%, the highest level since Oct. 2023. While the Fed reduced rates by a quarter point, as widely expected, officials reined in the number of cuts they expect in 2025.
The drop in gilts comes before the Bank of England sets policy later today. The central bank will hold rates unchanged at 4.75%, according to the median estimate in Bloomberg’s survey of economists.
“Gilts continue to struggle to hold onto any gains and we expect this to continue as long as the BOE remains cautious,” said Evelyne Gomez-Liechti, a strategist at Mizuho International Plc.
UK bonds have lagged peers for much of the year, and extended that underperformance in recent days after data showed inflationary pressures in the economy remain. The BOE has cut rates just twice this year, trailing the European Central Bank and the Fed.
Looking ahead to next year, money markets have recently pared easing wagers to price just two quarter-point reductions, according to swaps tied to policy-meeting dates, down from as many as three at the start of the week.
The yield on 10-year Treasuries rose two basis points to 4.54%, after surging 11 basis points on Wednesday. German bonds rose four basis points to 2.29%.
(Adds strategist comment in fourth, latest pricing in final paragraphs.)
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