Economy

UK sells government bond with highest yield since 1999

Published

1 year ago

July 5, 2023

UK sells government bond with highest yield since 1999

LONDON (Reuters) – Britain sold a government bond at auction on Wednesday that will pay investors an annual return of 5.668% – the highest yield of any gilt sold this century, as markets demand extra returns in anticipation of further Bank of England rate rises.

The United Kingdom Debt Management Office sold 4 billion pounds ($5.08 billion) of a government bond which will mature in October 2025, which attracted strong demand at 2.77 times the volume of offer, up from 2.34 times when the gilt was previously sold on June 7.

The last time the average yield at a gilt auction was higher was in September 1999 when 2.7 billion pounds of 10-year gilts were sold at an average yield of 5.694%.

Less than two years ago – before the BoE had started to raise interest rates, and when inflation was near its 2% target – government bonds sold at auction with yields of less than 1%.

The auction highlights how the cost of British government borrowing has shot up this year. When the October 2025 gilt was sold at auction last month the yield was 4.874%, and at its launch in January it paid investors a yield of 3.634%.

Last month the BoE unexpectedly raised its main interest rate to 5% from 4.5%, as Governor Andrew Bailey said inflation looked more persistent than expected, and financial markets currently expect rates to peak at 6.25% in December.

Consumer price inflation held at 8.7% in May, and the BoE’s most recent forecasts showed it dropping to just over 5% by the end of this year and below 2% by early 2025.

As a result, the real inflation-adjusted return for investors is likely to be far lower than when gilts last had similar nominal yields in the late 1990s.

The October 2025 gilt is also unusual in paying a higher yield than other gilts of similar maturity. Bond strategists at NatWest last week described it as “one of the cheapest bonds on the UK fitted curve”.

Yields on benchmark two-year gilts peaked at 5.406% on Monday, their highest since June 2008, and were 4 basis points lower on the day at 0945 GMT on Wednesday at 5.28%.

($1 = 0.7873 pounds)

Economy

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

Published

12 months ago

December 26, 2023

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.

The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.

Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.

“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.

Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.

“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.

The bank will next convene to set its benchmark rate on Feb. 16.

The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.

Economy

China identifies second set of projects in $140 billion spending plan

Published

12 months ago

December 25, 2023

China identifies second set of projects in $140 billion spending plan

© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo

SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.

With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.

The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.

China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.

The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.

“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.

The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.

($1 = 7.1315 renminbi)

Economy

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

Published

12 months ago

December 25, 2023

Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.

“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.

Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.

“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.

The bank will next convene to set its benchmark rate on Feb. 16.

The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.